Amounts of equity released from homes reached £1.24 billion in the second half of 2016 a record level of wealth that continues to growth.
The Equity Release Council shows lifetime mortgages used by equity release buyers from properties reached a record £1,24 billion in the second half of the year.
For the first time demand exceed £2 billion for the year with 27,500 plans releasing £2.15 billion in 2016 up from the £1.80 billion the previous year or 19.0% higher, according to the spring 2017 Equity Release Market Report.
You can access cash from any acceptable property for equity release with growth in lifetime mortgages now outpacing other types of mortgage finance, such as first time buyers, home movers, remortgage buyers and buy-to-let landlords.
Nigel Waterson Chairman of the Equity Release Council said, equity release is for those older people who either wish to remain in their current homes, or have even downsized already and need an extra financial boost.
Lifetime mortgages highest growth
Over the past 20 years the average pensioner’s house has increased in value by 148% in real terms compared to 66% increase in their retirement income, said Mr Waterson.
More people are unlocking the wealth built-up in their homes using a lifetime mortgage rather than home reversion plans as they can retain 100% ownership while remaining in their house, increasing their standard of living or help other family members.
The volume of lifetime mortgages has increased 22% with 27,534 new plans compared to 16% growth for buy-to-let (BTL) remortgaging which was the second fastest-growing segment of 2016, having been the fastest grower in 2013-2015.
The Equity Release Council report shows the rise or fall in plans taken out for different types of buyers as follows:
| Type of buyer | Year 2015 |
Year 2016 |
|---|---|---|
| Equity release buyer | 6% | 22% |
| BTL remortgage | 38% | 16% |
| Remortgage buyer | 13% | 14% |
| First time buyer | 1% | 8% |
| Home mover | 1% | -2% |
| BTL purchase | 17% | -13% |
Buy-to-let landlord for purchases have been impacted by the new stamp duty tax introduced from April 2016 and residential homeowners have benefitted from the fall in the cost of mortgage interest borrowing from lenders.
Costs are falling for older homeowners using equity release with loan to values based on age, smaller mortgages have more competitive rates reducing the cost of roll-up interest over time or lower repayments if you choose to pay some interest per month.
If you consider repaying the mortgage early at least in part, the majority of products allow you to make overpayments of up to 10% free of the early redemption charge (ERC) making this a cost effective feature.
See how much the interest rolls-up over time for a given interest rate and how the cost can be reduced by making overpayments using this link:
Free equity release calculator with instant figures on roll-up interest and overpayments.
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.
As property price growth begins to slow, demand from equity release buyers is expected to increase as older consumers take an increasingly holistic view of their wealth and assets when making retirement and inheritance plans, said Mr Waterson.
Drawdown equity release popular
Homeowners can access the wealth in their property using a lifetime mortgage taking a lump sum, drawdown on an agreed advance or using a home reversion plan.
Typically for the lifetime mortgage there are no monthly repayments made to the lender and instead interest to roll-up for their lifetime.
Where homeowners secure a maximum agreed advance and drawdown cash over time they need they will only pay interest on the amounts borrowed and this approach can greatly reduce the costs.
Drawdown products remain the preferred choice with 65% of homeowners with only 35% select a lump sum where they take the maximum loan at the outset and even fewer opting for a home reversion plan.
Releasing equity is used by older homeowners as the amount offered by lenders increases with age with the average rising from 70.9 to 71.9 years in 2016.
The most common age group is between 65 to 74 with 54.5% of all homeowners falling in this range with 21.2% for those aged 55 to 64, slightly less for 75 to 84 at 19.4% and only 3.0% for those aged over 85.
It is possible to replace an existing equity release plan if the fixed interest rate of the new plan is lower and this could mean there is more equity for your family when the property is sold.
Many families are turning to equity release as a vehicle to get children or grandchildren on to the property ladder, as well as paying down their own mortgage debts, says Mr Waterson.
What are your next steps?
Talk to our London City Mortgage advisers if you intend to take equity release drawdown from your home, we can recommend the equity release plan and you can consider the the benefits by talking to your family.
Find out more about the leading providers and products to drawdown cash over time and the most competitive interest rates with this link:
Free equity release quote with leading products for drawing cash over time.
Our LCM mortgage advisers can source the products that meet your needs when using drawdown cash release now and in the future. Learn more by using the equity release calculator, property value tracker chart and mortgage costs calculator.
