The rising popularity of lifetime mortgages has been accelerated further by the Covid-19 pandemic, and it shows little signs of slowing for over-55s seeking a more comfortable life.
Equity release has come a very long way over the last few decades. Those with longer memories still recall some of the scare stories in the late 1980s and early 1990s, when a series of unregulated equity release schemes first emerged and a combination of variable interest rates and falling house prices exposed homeowners to spiraling debt and negative equity.
Those days, thankfully, are gone, though feelings of distrust and suspicion still linger for some people. The most common types of equity release, lifetime mortgages and home reversion plans, are now regulated by the Financial Conduct Authority, while in 2012 the Equity Release Council was established to ensure high standards of conduct across the industry when giving advice on such products.
In the last decade, especially, the strong regulatory oversight and introduction of more flexible products, many with built-in protective features, has seen equity release grow in popularity as a safe way for homeowners to draw a lump sum, or regular sums, from the value of their home.
Lifetime mortgages are particularly desirable as, unlike home reversion plans, you remain the full owner of your home, with no need to make monthly repayments, unless you choose. There is also the option to guarantee an inheritance and withdraw extra funds from a reserve account.
“People are now a lot more open minded to lifetime mortgages than in the past,” says Marie Dalrymple, Equity release and mortgage specialist at Ascot Lloyd. “Nearly £4 billion was released from bricks and mortar in 2018 alone, according to the Equity Release Council, and in the last 18 months we’ve seen the number of enquiries at Ascot Lloyd double. This has been fuelled by new product innovation and options to repay early when downsizing, ring-fence a guaranteed minimum inheritance, or make interest or capital repayments to reduce the loan size over time.”
It’s also been fuelled by changing circumstances caused by the Covid-19 pandemic. Traditionally, a lot of homeowners leveraged equity release products to supplement their retirement income or fund home improvement. While this has remained the case to a degree, a significant number of over-55s have seen less need for supplementary income during the pandemic due to their reduced expenditure on holidays, restaurants and other costly outings.
What the pandemic has increased the demand for, however, is private healthcare. Between April 2020 and March 2021, the British Medical Association estimates there were 3.5 million fewer elective procedures and 22.27 million fewer outpatient attendances¹. Rather than wait for their NHS appointments to come around, or risk contracting Covid-19 on a ward, a growing number of homeowners have sought to release equity from their property to fund private operations.
“We’ve certainly seen a notable change in why people are opting for equity release,” says Marie Dalrymple. “A lot of people would rather release money from their home than wait another year for their operation or use their savings. I've had several clients that just don't want to wait, they're in so much pain. Also, property values have continued to climb throughout the pandemic, so some clients returned for further advances because they could take more out than before.”
Another thing that has been on homeowners’ side is interest rates. Already at rock bottom levels, and with little signs of rising in the near-term future, there has scarcely ever been a cheaper time to get a mortgage, and some people may be surprised to learn that a number of lifetime mortgage rates are only a small fraction above the standard residential mortgage interest rate.
This has meant many of the traditional lures of equity release – to help save on inheritance tax, help children onto the property ladder or consolidate debt – have attracted more homeowners too. The growing demand for equity release, coupled with increasing property values and record-low interest rates, has created a perfect storm for lifetime mortgage products. Ascot Lloyd offers independent advice on all aspects of equity release and has semi-exclusive access to some of the lowest rates on the market.
“People are actually shocked when they hear what rates are available to them now,” says Marie Dalrymple. “Many still think that these rates are up at 6 and 7 per cent, but really they’re not much more than if they were to get an ordinary mortgage. The pandemic has caused a lot of people to consider their mortality in ways they hadn’t done previously. Ultimately, it’s about enjoying your retirement, and indeed seeing your children enjoy their inheritance. Nobody wants to struggle, or see their kids struggle, when they can just release equity at these kinds of rates.”
If you’d like to find out more, our team of experienced independent financial advisers can guide you through the full range of mortgage and equity release options available to you and advise on the making the right decisions for you, taking into consideration your wider financial plan.
Please contact your Ascot Lloyd financial adviser for more information or request a call back using the form below and a member of the team will be in touch.
¹ Source: BMA Elective Procedures - 2019/20 versus 2020/21
Frequently asked questions
What types of equity release are there?
There are three ways to release equity from your home: downsizing, a Home Reversion Plan, or taking out a Lifetime Mortgage:
- Downsizing involves moving to a cheaper property, though this potentially means moving away from your home and community.
- Home Reversion Plan sells part of your home so you can still live there, but you won’t be the full owner.
- A Lifetime Mortgage means you remain the full owner of your home for life so you do not need to sell or move. There is no need to make monthly payments with a Lifetime Mortgage unless you choose to, and there is the option to guarantee an inheritance and place some funds in a reserve account to withdraw when needed.
Why would you want to release equity?
There are many reasons why people take out an equity release plan:
- To take out an interest-only mortgage to pay off an expensive repayment mortgage
- For home improvement
- As a gift to children which could help to save on inheritance tax
- To help children get on the property ladder
- To consolidate debt into a single manageable pot
- To supplement your income if your pension isn’t quite enough to live on
- To avoid moving out of a property to raise money
- To pay for care fees or care at home to look after an ill relative
How do I know if I am eligible for an equity release plan?
To be eligible for equity release you will need to be aged 55 or over, and have a home in the UK worth at least £70,000.
What is the maximum equity I can take out?
How much you can borrow depends on the value of your home and the age of the youngest applicant. Maximum Loan to Values (LTV) will vary from one lender to the next and is generally between 20% and 50% of your property’s value. The older you are, the more you can borrow.
What if I don’t need all of the money right now?
If you don’t need all the money you release, you can opt for a ‘drawdown’ option. This means you only release the money you need from your home when you need it. For example, you could release £100,000 but only drawdown £20,000. The benefit is you’d have the £80,000 available to take out without having to go through the application process, and interest is only charged on the amount you release.
Can I move or sell my home if I’ve taken out equity release?
Yes, you can take the mortgage with you to your next home although this could be subject to lender criteria.
Could I ever lose my home?
A common worry with equity release is the fear of repossession, but this will never happen with any plan approved by the Equity Release Council, thanks to built-in safeguards that protect you from ever owing more than you can repay.
What happens to my property when I die?
The property is usually sold once the last remaining borrower has died. The family will have 12 months to make the sale or pay off the loan themselves and keep the house.