The Rise in Popularity of Equity Release

Older homeowners are releasing an average of more than £100,000 from their properties, in what is being termed a 'middle-class stampede' towards equity release.

Two separate studies found that homeowners were able to access triple-figure cash pots when taking out equity release deals- also known as 'lifetime' mortgages.

This is when older homeowners take out a new mortgage on their home, allowing them to access some of the money tied up in it to spend in their later years. The loan is paid back from the sale of the property when the owner dies or goes into long-term care.

Retirement lender Key Equity Release's Market Monitor suggests that, in the first three months of this year, the average homeowner who took out an equity release plan received £103,710: that's 25% more than the £83,000 released in the first quarter of 2020. The total value released increased 12.8% to £1.07billion.

Key said homeowner's cash pots had been boosted by increases in house prices, which have risen by more than 10% in the year to March, according to the Office for National Statistics.

An increase in the market value of your home means the equity you can release also goes up. The average loan-to-value of the mortgages taken out by equity release borrowers increased by just 2%, from 25% in the first three months of 2020 to 27% in the first three months of 2021 - and the number of plans sold actually reduced year on year.

This suggests that increased house prices were largely responsible for the boost. The strength of the property market driven by the extension of the stamp duty holiday is helping to increase the property wealth that over-55s can use for retirement planning.

The average amount released at more than £103,710 demonstrates how important property wealth is in meeting customers' wants and needs, while the rise in the average value of homes owned by customers' shows how wealthier customers are looking to use their homes.

Data from later life mortgage broker ResponsibleLife indicates an even more dramatic increase in the sums that equity release borrowers were accessing. It says that the average amount released by its customers increased by 31% in the 12 months to April climbing from £86,000 to £112,700.

Like Key, ResponsibleLife credited house price increases for the rise - but it also said that there had been a shift to a wealthier demographic who owned higher-value homes. In April, it said the average value of a home being used to secure a lifetime mortgages was 19.4% higher than a year ago, at £487,000 – nearly double the UK's average house price.

Experts believe that there's no doubt there has been a middle-class stampede for lifetime mortgages over the past year, thanks to interest rates sinking to historic lows. Wealthier homeowners have cottoned on to how rates have come down and now see lifetime mortgages as an affordable way to improve their standard of living in retirement.

Gone are the days when they were considered a product of last resort.