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Equity release loans double in 7 years as older homeowners cash in

The amount of money that older homeowners cash in through equity release this year is forecast to be more than double that in 2015, according to anew nalysis. 

Sales of equity release products have boomed in recent years. Data covering the first three months of the year shows that 4,500 products a month have been taken out by the over-55s, as they tap equity in their homes for cash.

This compared to an average of 1,978 per month in 2015, according to wealth manager Quilter, as older homeowners cash in on decades of house price inflation.

And the trend has accelerated further this year, despite equity release mortgage rates rising, with the rising cost of living cited as a major factor. If current trends persist, there could be as many as 54,000 lifetime mortgages sold in 2022 – nearly 10,000 more than in 2021.

Higher LTV lifetime mortgage products have grown in popularity over the past two years despite 10-20% loans comprising the majority of sales. 

Last year a total of 44,793 lifetime mortgages were sold with an average of 3,733 sold a month. 

The rise in over-55s cashing in via equity release, which allows them to borrow against their home with no monthly payments and interest rolled up until death, comes on the back of years of house price rises.

Over the past 30 years, the average home’s value has climbed from £52,000 to  £274,000, according to Nationwide’s house price index.

New equity release mortgages were up 26 per cent in the second quarter of this year, compared to the same time in 2021, according to separate Equity Release Council data.

Data from Freedom of Information requests, gathered by Quilter, show the rise in equity release products over the past 8 years

Data from Freedom of Information requests, gathered by Quilter, show the rise in equity release products over the past 8 years

Equity release mortgages allow older homeowners to access some of the value tied up in their home tax-free. 

The loans are then repayable with interest when they die or go into long-term care.

Charlotte Nixon, mortgage expert at Quilter says: ‘Equity release can be a useful product for some people depending on their financial circumstances. 

‘However, it is worrying that the rise in the popularity of this product coincides with the cost-of-living crisis. 

‘Taking equity out of your home, which you have spent years paying off should not be taken lightly and you should have a long-term plan for what you do with that equity rather than use it simply to help pay monthly bills or feel like you have more cash in your pocket for the here and now.

‘There is no getting around that this product does carry significant risks. 

Equity release loans, also known as later in life mortgages, unlock the value built up in a home, allowing them to access it as tax-free cash.

They allow homeowners aged 55 and over to get a loan secured on their home, worth up to 60 per cent of its value, while still remaining the sole owner. They can use the money for anything they like.

The loan and interest accrued is then repaid through the sale of the property when the last surviving borrower dies or go into long-term care.

However, as the interest accumulates it can become a substantial part of a home’s value. Some deals do offer the ability to pay off interest to protect inheritances.

The average house price has risen more than fivefold since 1992, according to Nationwide's index, meaning long-term homeowners tend to have substantial equity locked up in homes

The average house price has risen more than fivefold since 1992, according to Nationwide’s index, meaning long-term homeowners tend to have substantial equity locked up in homes 

Ms Nixon said: ‘Lifetime mortgages charge compound interest so failing to keep up with your payments could mean that the entire sum borrowed compounds.

‘However, this product can be useful for people that have built up a life in a particular community that they are unwilling to move out of as you can release capital but still live in your property. 

‘Considering house prices have soared in recent years the prospect of downsizing but staying within a particular area is not feasible. 

‘Seeking out professional advice before making any decisions is crucial as it can have long lasting and devastating impacts on people’s wealth if it goes wrong.

‘Similarly, equity release might be used to fund care costs when people think they have no other choice. 

‘The care system is tricky to navigate, and equity release might not be the best option particularly if you need to move into long-term residential care.

‘Everyone’s finances and needs are different which is why it’s so important to get advice if looking to take out a product like this.’

The data, acquired through Freedom of Information requests, also reveals that the most popular loan-to-value (LTV) band for lifetime mortgages between 2016 and this year is 10-20 per cent with an average of 916 mortgages sold per month since 2015, and a total of 79,699 from 2015 to March 2022.

By comparison, on average 39 lifetime mortgages in the 50-60 per cent LTV band were sold each month since 2015 with a total of 3,394 sold up to March 2022.

However, the popularity of higher LTV lifetime mortgages has increased in recent years with the average sold between January 2021 and March 2022 sitting at 67 per month. 

Comparatively, 33 50-60 per cent of lifetime mortgages were sold per month on average up from January 2015 to December 2020.

A lifetime mortgage is just one type of equity release with the other product called a home reversion plan. 

This plan enables you to raise money by selling all or part of your home while continuing to live in it until you die or move into permanent residential care.

Get a free guide to equity release

The Mail on Sunday has produced an essential guide for people aged 55 or over who are looking to extract equity from their homes to boost their finances. 

The 40-page booklet, by Mail on Sunday Personal Finance Editor Jeff Prestridge, examines all the financial options available to equity-rich, cash-poor homeowners – and their respective merits and potential drawbacks. 

It also gives invaluable guidance on the equity release products available and how they can be best set up to mitigate interest costs and protect a slice of a home’s value for inheritance purposes. 

To request your free copy of The Mail on Sunday’s guide to unlocking the cash from your home, call 0808 239 5293 or visit mailfinance.co.uk/unlockcash 

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