Can Equity Release continue to sizzle?

The over 55’s are releasing cash from their homes in record numbers. Recent years has seen continued growth in the number of cases and 2018 is likely to reveal another record year. At the 6 month stage into 2018, estimated cases are already showing growth of 35% on 2017, which represents £1.7 billion of property wealth released in the first 6 months of 2018. So we are now approaching a staggering £10 million per day of Equity Release products being taken out.

There are a number of reasons and important factors for this popularity as follows:

• Property owners with low pension income or reliant solely on the state pension. Trading down to a smaller property could achieve the same thing but finding the right property, the upheaval and the costs involved, can make this unattractive. 
• Property owners with standard interest only mortgages coming to the end of the mortgage term. Many of these products were taken on before the financial crisis with the only way to repay the mortgage by sale of the property. Now at the end of the mortgage term clients are looking at other options so that they can remain in the property.
• Tax free lump sum that can be used for any purpose and optional future drawdowns. Funds are being used for many purposes – home improvements, care costs at home, cars, repaying debts, gifts to family, holidays, new vehicles etc
• No income assessment. Equity Release products have no requirement for monthly payments and so do not require an income assessment.
• No health assessments and limited age restrictions. The nature of these products means that the older and more health issues that you have, you could achieve improved terms with some products.
• Equity Release Lifetime mortgages are comparatively simple products. They are similar to a standard mortgage that many of us have been familiar with when purchasing property. Simple and clear presentations of equity release products is essential including your rights and obligations and includes mortgage costs, tax implications, moving home and the effect of changes in house values.
• Lifetime fixed interest. Many of those who are taking out a lifetime mortgage have experienced mortgage interest rates in excess of 15%. Lifetime fixed interest removes the risks of interest rate movements, which is a key concern when taking on a mortgage in later life.
• Tax planning. For example. a couple decided to release equity from their property and use these funds, which are tax free, to bring the value of their estate below the threshold for Inheritance Tax. The lifetime mortgage is a liability against the estate for inheritance tax purposes.
• Compound interest. This remains a key factor for these products and sees the debt increasing because of interest upon interest. Current lower interest rates can reduce the impact of this issue and some products allow the ability to manage and limit the effects by making some payments.

So yes, there are many positive reasons behind the popularity of Equity Release, especially as we are now seeing some lifetime fixed interest rates at historically low levels between 3 ½% and 4%. Whilst property values remain high and interest rates remain comparatively low this popularity is likely to continue.

However, please consider the detail of the products carefully; involve family in the process, where applicable, and take professional independent financial advice.