Equity release hits record high as baby boomers cash in property wealth

An increasing amount of housing wealth is being unlocked by over-55 homeowners.

Equity release lending surpassed £3 billion for the first time in 2017, according to the new figures from the Equity Release Council.

The total amount of housing wealth unlocked by over-55 homeowners reached £3.06 billion in 2017. The lending figure represents an increase of 42 per cent on 2016, when the overall amount stood at £2.15 billion, which at the time was a record.   

Equity release is a kind of reverse mortgage on your house. The maximum loan-to-value ratio depends on the borrower's age, but it can be as high as half the value of the house for those over 80. 

The interest on the loan rolls up - so interest accumulates on interest added to the loan - but no loan repayments are due until the borrower dies or moves into long-term care.

For the generation of baby boomers that are now retiring, their homes have become the main repository of their wealth, and it is no surprise that there is growing demand for ways to convert bricks into cash.  

Drawdown lifetime mortgages remain the most popular type of product, representing 75 per cent of new plans agreed in the fourth quarter of 2017, up from 64 per cent in the fourth quarter of 2016. Unlike a larger lump sum withdrawal, these products allow for a gradual withdrawal of housing equity, thereby limiting the interest owed. 

David Burrowes, chairman of the Equity Release Council, says: ‘The record-breaking demand for equity release over the past year is testament to the fact more consumers are changing the way they plan financially for retirement, and taking a broader range of options into consideration. 

‘Property is, for many people, their largest asset and has the potential to play an ever-greater role in the future to meet the challenge of ensuring effective later life funding.’

Steve Ellis, CEO of Home Finance at Legal & General, expects equity release to become even more popular in the coming years, given that £1.5 trillion of property wealth is in the hands of the over-55s.

He adds: ‘There is definitely the potential for this market to continue its strong growth and reach £5 billion by 2020. However, this will require continued innovation from lenders to provide consumers with improved product flexibility.’ 

But Steve Webb, director of policy at Royal London, cautious that equity release will continue to remain a niche product rather than hitting the mainstream. 

‘Although equity release sales are rising quickly, it is still only a small minority of retirees who are going down this route.  New product sales of under 40,000 in 2017 out of a retired population of more than twelve million shows that this remains a niche product at this stage. However, as more people reach pension age with limited access to company pensions we may find steadily more people wanting to top up by drawing on part of the value of their home,’ says Webb. 

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