The rise of equity release

Life stages

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.

Marie Dalrymple

“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 buy a house 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.

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¹ Source: BMA Elective Procedures - 2019/20 versus 2020/21