There has been a surge in the number of over-55s releasing equity from their homes, according to latest industry data.
Equity Release Council figures for the final quarter of 2017 show that more than 10,000 homeowners took this course in the final three months of the year - the first time that has happened. The actual cash sums released in the period also hit a new record, at £838m.
You can see the growth in popularity of equity release by comparing the sum released last year with previous years. Back in 2014, just £1.38bn was released in the whole year. By 2017 the number had more than doubled to £3.06bn.
Equity release is nothing new. The last time growth in activity neared these levels was 2002, when the UK was experiencing a credit boom and house price rises were rampant. Dizzy with property value gains that were making ordinary people improbably rich (on paper at least), many saw equity release as the easiest way to make those gains real.
The resurgence of equity release today can be explained partly by recent house price gains, although these are now slowing at an aggregate level and are in reverse in some areas. There may also be a demographic effect, with simply more people hitting the qualifying 55-year-old age threshold as the age profile of the UK continues to climb.
There may be other reasons, however, why property wealth is once again being reached for by today’s retirees. This group is likely to include many who took interest-only mortgages, where the interest is cleared each month but none of the initial capital. Many of these borrowers are likely to have failed to provide means for clearing the whole debt once their term is reached, and equity release could be a way to do it.
The Financial Conduct Authority has previously forecast there will be three spikes in the numbers of interest-only borrowers reaching the end of their term and needing to find money quickly to clear their loan. The first of these peaks was forecast for 2017-18, which reflects the high-point of sales of endowment mortgages (which incorporate interest-only loans) in the late 1990s and early 2000s. This peak fits neatly with the uptick in equity release borrowing last year.
Another potential trigger for equity release is long-term care. As we all are living longer, the chance that expensive care will be required rises. It’s only a minority that have to pay for care but, for those who do, the bills can be way beyond their savings. Property wealth, via equity release, is one way to meet them.
Whether it’s to clear an outstanding mortgage or to meet care bills, it’s clear that property wealth is providing invaluable support to people when they need it. This should serve as a lesson to those of us still many years from retirement, particularly those prioritising housing wealth ahead of other savings, such as pensions.
You may well be able to use the equity tied up in your home to provide a comfortable retirement, but don’t rule out the possibility that you’ll need it for a less exciting, but more essential, reason such as clearing debt or paying for long-term care.
Deciding whether equity release is the right course should only be done with the help of an independent financial adviser.
For other retirement income help, the Government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at http://www.pensionwise.gov.uk/ or over the telephone on 0800 138 3944.
Fidelity’s Retirement Service also has a team of specialists who can provide you with free guidance to help you with your decisions. They can also provide advice and help you select products though this will have a charge.
The value of investments and the income from them can go down as well as up, so you may not get back what you invest. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.