Equity release will fund £3bn spending as over-55s pay into homes

Redeeming the value of their home funded £3billion in expenses from over-55s last year as they used the money to supplement their income and meet day-to-day expenses.

An estimated one in every £90 spent by pensioners domestically last year was due to equity releases, according to new figures from Legal & General and the Center for Economics and Business Research.

As the cost-of-living crisis puts more pressure on pension funds, the trend towards freeing up equity, where owners can borrow against the value of their home, is likely to continue.

Market analysis by mortgage broker Henry Dannell shows that UK homeowners have already freed up £1.4 billion in equity in 2022, with that figure estimated at nearly £5.6 billion by the end of the year.

Demand for credit for later life is increasing as the cost of living crisis puts pressure on pension funds.

In the first three months of this year, over 12,500 homeowners chose extended-term mortgages — a 21.4 percent increase from the first quarter of 2021.

Equity-release loans, also known as deferred mortgages, release the value built up in a home so you can access it as tax-free cash.

They allow homeowners over the age of 55 to get a loan worth up to 60 percent of the value of their home while still remaining the sole owner. They can use the money for anything they want.

The accrued loan and interest are then repaid through the sale of the property if the last surviving borrower dies or is placed in foster care.

However, when interest accumulates, it can become a significant part of a home’s value, and as such some businesses offer the option of paying interest to protect inheritances.

While the majority of the money released, £1.9 billion, was used for the occasional big purchase such as refurbishments, furniture or even a new car, a significant amount, £1.3 billion, is used to cover daily expenses – daily expenses including food, clothing and transportation.

The remaining equity of around £480m is to be spent on international holidays and financial planning.

Maintaining the standard of living in retirement (16 percent) and paying off personal debt (16 percent) are also given as reasons for claiming the release.

Retirees are turning to mortgages later in life to fund everything from home renovations and vacations to everyday expenses like groceries and clothing.

Retirees are turning to mortgages later in life to fund everything from home renovations and vacations to everyday expenses like groceries and clothing.

Craig Brown, Chief Executive of Legal & General Home Finance, said: “Our report highlights that homeowners are increasingly planning to use equity release or other ways of accessing real estate assets to finance later in life.

‘This shift reflects the boom in real estate values ​​that have made our homes such a vital asset, but it also shows how far the equity release market has come through the introduction of product innovation and how it has evolved into a more appropriate solution to a broader one Spectrum has become a series of people.’

Overall, the growing UK later-life credit market is worth up to £153.9 billion, according to AKG Financial Analytics.

This includes standard mortgages, annuity interest or equity release mortgages for borrowers over 55 years of age.

Additionally, around 50 percent of advisors have noticed an increase in demand for advice on lending in later life over the past year, and 58 percent expect demand to increase over the next 12 months.

Geoff Garrett, Director of Henry Dannell, commented: “For life mortgages are growing in popularity among homeowners across the country, many of whom are now making the most of the significant appreciation that their property has enjoyed over the past two years.

“For some it has become a safety net to deal with the rising cost of living, but we also see this increased activity being driven by those at the top end of the market who may not be facing the same financial difficulties as the average homeowner .

Equity Release: How It Works and Advice

To help readers consider equity release, This is Money has partnered with Age Partnership+, independent advisors specializing in retirement mortgages and equity release.

Age Partnership+ compares deals across the market and its advisors can help you figure out if equity release is right for you – or if there are better options, such as B. a reduction.

Age Partnership+ advisors can also see if those with existing equity release deals could save money by switching.

You can compare equity release rates and calculate how much you could potentially borrow This is Money’s new calculator powered by Broker Age Partnership+.*

* Affiliate link

This is due to a number of factors – greater product choice and flexibility means that later-resume mortgages are no longer the rigid, complex tool they once were, and a competitive lending market has also helped reduce the cost of borrowing Reduce equity from a property. ‘

However, equity release products are not without their downsides.

Your home’s debt increases with interest accrued and can account for a significant portion of the overall property value. And while the loan and interest can be paid off upon death, repayment reduces the value of an inheritance.

Some equity release products offer the option to pay off interest over time.

Or you can take out a series of smaller lifetime mortgages over the years. This way you don’t pay any interest on the total amount for the entire period, so you have less debt.

It’s also important to note that after taking out an equity release loan, you probably won’t be able to use your home as collateral for other loans.

And there’s an argument that keeping your money invested in your home is better than sitting in your bank account as cash. Additionally, the money freed up by mortgage lending later in life can affect your eligibility to claim means-tested benefits such as pension credits or council tax credits.

Currently, 5 percent of homeowners are using the equity release to fund retirement, but based on the anticipated plans of younger homeowners, that proportion is expected to nearly double to 10 percent.

Some links in this article may be affiliate links. If you click on this, we may earn a small commission. This helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow a business relationship to compromise our editorial independence.

Equity release will fund £3bn spending as over-55s pay into homes

Source link Equity release will fund £3bn spending as over-55s pay into homes

Back to top button