20 Dec The Rise and Rise of Equity Release
Equity Release – London and UK Nationwide
Around since the 1960’s, bad press in the 1980s, now a good solution to later life living
The equity release market in the UK reached just under £4 billion in 2018 against total UK private property wealth exceeding £4 trillion, and seems set to continue into 2020 and beyond. Some remain skeptical and remember negative press from back in the 1980s. This article provides a bit of context to it’s history and an update on where equity release is today in the mortgage market.
Equity release first entered the market as home reversion schemes available through specialist providers back in the 1960s. Then followed the first lifetime mortgages being offered in the 1970s. During the late 1980s consumers suffered from ill advised products and sales practices where roll up interest charges combined with falling house prices led to consumers being disadvantaged, severely damaging the credibility of equity release.
Industry self-regulation followed with the introduction of a code of practice, under the trade body Safe Home Income Plans (SHIP), established in 1991. This trade body transformed itself into the Equity Release Council in 2012, which is regulated by the Financial Conduct Authority.
Today, equity release products typically fall into the following categories
- Lifetime Mortgages: Borrow money secured against the value of your home which you take as a tax-free lump sum or regular income (draw down) to spend as you wish. You keep ownership of your home and interest is charged on what you have borrowed, which can be repaid or added to the total loan amount. Repayment is due when you die or go into long term care (the home usually sold to pay off the loan)
- Home Reversion Schemes: Available to 65+ years. Sell all or part of your property at less than its market value in return for a tax-free lump sum, a regular income, or both, but stay on in your home as a tenant, paying no rent. When you die or move into long term care the home reversion company gets their share of the proceeds of the sale. (Please note that home reversion schemes are high-risk products which are not available through Just Us Financial Solutions) to find out more call 020 7562 5767 or send a message over on our Contact Form.
As the population ages, the percentage of those who own their home outright has shifted to the older age groups. As of 2017/18, 64% of those who own their home outright were aged 65 and over, far outweighing other age groups. In line with this, the average age of those who own their home outright is now 67.73. This correlates with the average age of new lifetime mortgage customers (draw down plans 70.30 years, lump sum plans 68.00 years).
As is common where demand increases, lenders offer more product choice in the market, as they compete for customers. The Equity Release Council figures show that the total number of products available more than doubled in the year between August 2018 and August 2019 from 126 to 287. Together with a greater range, the cost of equity release products has been steadily falling, since 2015, with average interest rates falling below 5% for the first time in July 2019.
Lifetime Mortgages and Equity Release
Lifetime mortgages as a means of equity release has undergone somewhat of a renaissance in recent years. It could be a viable and practical alternative to downsizing, can assist with gifting and early inheritance (Bank of Mum & Dad), funding a more comfortable lifestyle, and clear off other debt, mortgages and interest only mortgages. Here at Just Us Financial Solutions, we have equity release experts who can advise you on a range of products that could suit your needs as you get older. As a regulated product you do need to obtain financial advice before you commit. If you have any questions, or would like to discuss your mortgage arrangements in more detail, please contact us.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
EQUITY RELEASE WILL REDUCE THE VALUE OF YOUR ESTATE AND CAN AFFECT YOUR ELIGIBILITY FOR MEANS TESTED BENEFITS.