Homeowners have used equity release to withdraw a record £8.2 million of housing wealth per day or £0.5 billion each quarter.
The Equity Release Council latest data showing UK homeowners have accessed housing wealth and for the first time since records began, quarterly equity release lending has surged past half a billion.
A lifetime mortgage is one of the ways of raising extra money and a total of £514.4 million of equity from properties was unlocked during the second quarter of 2016.
This beats the previous record of £452.6 million set in the third quarter 2015, up 34% when compared to the same quarter last year and 58% higher than two years ago.
The top three quarters for equity release mortgage buyers have all come within the last 12 months, as those aged over 55 look in growing numbers to the wealth built up in their homes.
Why do people use equity release?
The lifetime mortgage is typically used by those aged 65 and over if they have an acceptable property for equity release, where no monthly repayments are made to the lender and instead homeowners allow the interest to roll-up for their lifetime.
Many people have seen the buying power of their pension income diminish while the value of their property has increased.
By unlocking this wealth they can remain in their home while increasing their standard of living, help other family members or even buy a new house with equity release.
Common uses for equity release include paying for travel or other one-off expenses, pay off existing mortgages and loans, funding home improvements or care related adaptations.
See how mush you can access using a lifetime mortgage to buy a new house and the interest rate for this purchase with this link:
Free equity release calculator with instant results to buy a new house.
The funds can also be gifted to help first time buyers and home movers to help them buy their homes or reduce their mortgage debt as a ‘living inheritance’.
Where the estate is large, equity release can be a way of avoiding inheritance tax as long as homeowner lives for seven years after the gift it falls outside the estate for inheritance tax purposes.
Older remortgage buyers are often forced by the lender to repay their loan at a certain age and rather than downsizing, they can agree a lifetime mortgage without any evidence of earnings which is important for borrowers with only pension income.
Cost of equity release reducing
New providers have been increasing choice of products and features with Legal & General reducing the cost of equity release with a new 4.44% lifetime mortgage rate.
The 4.44% rate is available for loans of £250,000 or more with a lower fee of £1,500 compared to £4,999 previously charged and rates for smaller loans have also been reduced from 4.99% to 4.59%.
With falling interest rates, replacing an existing equity release plan with a high interest rate may be possible depending on the loan compared to the property value as the interest you save would increase the equity in the future.
Despite the reducing cost, equity release remains expensive as interest is rolled-up over time and compounded with the homeowner paying increasing interest on the outstanding loan.
The loan is typically repaid on death or at the time the homeowner enters a care home.
One way of reducing the cost of equity release is to pay the part or all the interest as you go or make an overpayment so the interest does not roll-up over time and erode equity for your beneficiaries.
Nigel Waterson, Chairman of the Equity Release Council has said homeowners increasingly see housing wealth as a fundamental part of their retirement funding plans.
The long term rise of house prices has allowed many older homeowners to build up considerable reserves of housing equity, which have the potential to solve many of the financial challenges facing the UK’s ageing population.
What are your next steps?
Talk to our London City Mortgage experts if you want to use equity release to buy a new house, we can recommend a lifetime mortgage product and manage the process to the provider valuation and offer.
Find out which are the best products and interest rates for a lifetime mortgage so you can buy a new more expensive property using this link:
Free equity release quote with the best products and interest rates to buy a new home.
At LCM our advisers can find the provider and product to meet your needs for the new property. Learn more by using the equity release calculator, property value tracker chart and mortgage costs calculator.
