Equity release to hit all-time high this year as older owners deposit freebies

Equity borrowing is expected to hit an all-time high this year, with older homeowners using money from their homes to pay off debts and help their families during the pandemic.

More than £ 1billion was borrowed in the three months leading up to the end of September, according to the quarterly market monitor of Stock Disclosure Advisor Key.

This was a 19% increase in the amount released from the £ 884 million recorded in the third quarter of 2020, and allowed borrowing to exceed £ 4 billion by the end of the year .

Freeing up equity allows homeowners over 55 to access the wealth tied up in their property

Individually, the typical homeowner withdrew £ 101,593 from his property’s equity, which is 23% or nearly £ 20,000 more than the average of £ 82,827 during the same period in 2020.

Key said this was because homeowners used the freeing up of equity as a way to pay for “gross” expenses – especially to clear existing debts or help their families financially.

Almost three-quarters (73 percent) of the cash released from homes was used for one of these two purposes, he said.

Equity Release, also known as a Lifetime Mortgage, is a way for homeowners aged 55 or older to access some of the money tied up in their property tax-free.

Borrowers get a secured loan on their home – which can be up to 60% of its value – while remaining the sole owner. They are then free to use the money for whatever they want.

The loan must be repaid, with interest, by the sale of their home once they are deceased or placed in a long-term care facility.

Key said around £ 588million of the money released in the three months leading up to September was used to write off debts. The average sum used to repay debts was £ 23,500.

There has been an increase in cash used to pay off unsecured debts and mortgages

There has been an increase in cash used to pay off unsecured debts and mortgages

Most of the funds were used to pay off an existing mortgage, according to Key

Most of the funds were used to pay off an existing mortgage, according to Key

More than two-fifths (42%) of the money given to family members was used for home deposits.

This may be due to the huge increases in home prices seen over the past year, which have put homes out of reach for some, especially first-time buyers.

The latest Halifax estimate suggests prices have risen by £ 31,500 since the start of the pandemic.

Another 36 percent of the equity release money was given as an early inheritance.

In times of social and economic uncertainty, freeing up equity is used to meet urgent needs such as debt repayment or family support

Those equity-freeing borrowers who donated to friends and family gave them on average just over £ 55,000, while anticipated inheritances averaged almost £ 30,100.

The Key report said: “Usually in times of social and economic uncertainty, freeing up equity is used to meet urgent needs such as paying down debt or supporting extended families through gifts, rather than expenses. discretionary on vacation or renovations.

“While the pandemic is certainly seen as a time of uncertainty, other factors such as the stamp duty holiday, low interest rates and lockdowns have also had an impact on customer choices.”

“Recycling” of real estate wealth over the generations

Equity Release Council chief executive Jim Boyd said the equity release was becoming a “multigenerational financial planning tool” through which older people could use their real estate wealth to help younger parents.

“The ability to ‘recycle’ wealth from housing is transformative for many families when it comes to the ambitions of younger generations to move forward in life, from buying a house to getting married to pursuing studies and starting a business, ”he said.

However, others cautioned against older borrowers who may be forced to donate large sums of money to their families, and urged them to get the right advice.

“Comments from some customers are that the pandemic has caused them to reassess what is important to them and naturally family comes first.

“However, as advisors, it is our job to make sure that people enter the equity release equipped with all the information on how borrowing will affect them now and in the future.

“We also need to make sure that people don’t borrow more than they need, because there are now plenty of options to free up money in installments as you need it, rather than a lump sum. “

Other ways borrowers freeing up equity spent their money included their home and garden (37 percent) and vacations (9 percent).

However, some believe that now the financial effects of the pandemic are fading for some there will be a return for the elderly spending the money they took out of their homes to enjoy their retirement.

Do your homework: Homeowners are urged to carefully consider the implications of purchasing an equity release product.  It is a legal obligation to obtain professional advice

Do your homework: Homeowners are urged to carefully consider the implications of purchasing an equity release product. It is a legal obligation to obtain professional advice

Claire Singleton, CEO of Legal & General Home Finance, said: “Lifetime mortgages have long been used to support debt management and giving, but at Legal & General Home Finance we are also now seeing early indicators that people are returning to ambitious spending that was popular before the pandemic, with a resurgence in borrowing to support travel and family celebrations.

Although the amount of money released by homes has increased over the past year, Key’s report found that the number of share release plans subscribed had decreased 3.2% year-on-year to 10,333 by the end of September. It also remained below pre-pandemic levels.

Customers are also increasingly remortgage plans that they have already subscribed to.

Key estimates that at the end of September the market had handled 3,000 remortgage cases with clients on average, going from a loan of £ 134,597 at a rate of 5.1% to 3.6%.

Typical Mortgage Mortgage Rates Increased Slightly This Year

Typical Mortgage Mortgage Rates Increased Slightly This Year

Interest rates on parole mortgages have declined in recent years, and some products now have more flexible terms that allow borrowers to pay interest as they go, for example.

However, rates rose slightly from the first quarter of this year, when they were around 2.84 percent, to an average of 3.16 percent now.

Rates are unlikely to hit their previous highs of more than 6%, however, according to the report.

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