You are here: Home - News -

Equity release lending could pass £2bn this year

by:
  • 18/07/2016
  • 0
Equity release lending could pass £2bn this year
Older homeowners borrowed over £934m of equity from their homes in the first six months this year, as new lenders like Legal and General and OneFamily continue to drive market momentum.

The average customer took out a loan of £76,300, a £7,850 rise on last year, according to a report from Key Retirement, although large regional variations meant Londoners took out an average of over £184,000, against £67,000 in East Anglia.

Rising house prices helped drive confidence with the average property value of homeowners using the plans rising 16% to £307,021 from £271,248.

Most borrowers used the cash to improve standards of living, with 65% spending it on home or garden improvements while 29%, used it to pay for holidays. Almost a quarter gifted cash to family and friends.

However, reducing debt was also a priority with 29% using the cash to pay off credit card and loan debts while 22% paid off mortgages.

Dean Mirfin, technical director at KeyRetirement.com, said: “The equity release market is hotting up, with more mainstream lenders entering the market and more asset-rich homeowners looking to unlock the wealth from their homes in the face of declining annuity rates and continued low interest rates.”

There are more borrowers in the south east and London than any other area, worth £4.67m.

Around 61% of all sales were drawdown plans against 39% from lump sum single advance lifetime mortgages.

Meanwhile, new analysis from Royal London, the mutual pension provider, warned against downsizing as a retirement financing plan, which it said could halve income if the sole source of private finance.

According to the Royal London study, this would occur if a worker on £27,400 a year downsized from an average detached property worth £310,000 to a smaller semi-detached home valued at £197,000, and then used the released capital to buy an annuity.

This income, combined with the state pension, would produce about £13,700 a year, which is half the pre-retirement earnings of the worker, according to the mutual’s analysis.

“Hoping to live off the value of your home could be a downsizing delusion for millions of people,” said Steve Webb, director of policy with Royal London.

“In most of Britain, the amount of money you could free up by trading down at retirement to a smaller property would generate a very modest income. In addition, house prices can be volatile.”

In recent weeks, annuity rates have fallen more than 3%, meaning that those locking into a secure income are receiving thousands less income during their retirement than if they had bought an annuity a year ago.

The continued fall in annuity rates has coincided with increasing interest in downsizing as an alternative to traditional pension saving.

Recent research from Barings Bank suggested a record one in 12 people — or about 3m — were looking to fund their retirement by selling or renting property.

There are 0 Comment(s)

You may also be interested in