Latest figures show that the value of equity release transactions increased by 11% over the previous quarter and 21% over the same quarter last year
According to the most recent figures published by the Equity Release Council, more and more homeowners are choosing to release the value stored in their homes by taking out equity release plans. These schemes allow homeowners to release money against their home, normally in the form of a re-mortgage, without having to pay it back during their lifetime. After the homeowner dies or moves out (into a care home, for example), the house is typically put on the market in order to pay off the balance of the loan.
There are various ways in which an equity release plan might be configured. The most popular types are lifetime mortgages, in which compound interest is added to the loan until the mortgage is settled, interest only deals, where the homeowner will have to pay back the interest on the loan while they are alive, and home reversion plans, in which homeowners sell a share in the property in exchange for a cash lump sum or regular payments but no rental payments are payable during their lifetime.
The amount of money that can be released by these schemes depends on a number of factors, such as the property value, their age and state of health. To get an idea of how much can be raised, homeowners could use a calculator, such as the Bower Retirement Services equity release calculator. By providing a few details, users can gain a fairly accurate picture of how they might benefit from such a scheme.
There are several factors that may be driving the rise in popularity of these schemes, which have been around since the mid-1960s. One is the fact that the average age of UK residents is rising. At present, one in six UK residents is over the standard retirement age of 65; this is expected to rise to one in four by 2050. This will place an increasing demand on the state finances, which could lead to reductions in pension payments and a raising of the retirement age, leading many to consider methods of obtaining additional funds for their retirement such as equity release.
The growth may also be a sign that the reputation of the equity release industry is improving. It took something of a battering in the 80s and early 90s, when several homeowners suffered losses as a result of plans which turned out to be misconceived. Since 2004, legislation has come into force which has made the sector comprehensively regulated and safe. This has brought a new culture of transparency into the industry and this has done much to restore its reputation.
However, another compelling reason for the rise is that interest rates are currently at a long-term low and this trend is expected to continue for some time. This means that rates on equity release plans, which are invariably fixed for life, are currently very competitive.
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