Older homeowners use equity release to pay off mortgage

Paying off interest-only mortgages is one of the key influences behind older homeowners’ decision to take out equity release.

Among those aged between 55 and 64, more than three quarters of people considering releasing equity were doing so to repay their mortgage and 60% wanted to clear unsecured debt.

The findings, which were revealed as part of the quarterly figures published today by the Equity Release Council (ERC), which represents the equity release sector, illustrate how social factors are increasingly driving homeowners to access their property wealth.

The ERC also revealed how, as equity release customers got older, their reasons for releasing money tied up in their home changed.

Indeed, the main reason for those in the 65 to 74 age range for using equity release was to pay for home improvements. In the 75 and over age range customers were tapping into the equity in their home to supplement retirement or pension income in order to meet general living costs.

Research from adviser, Equity Release Supermarket, echoed these findings. It discovered the most common reason for releasing equity was to repay an outstanding mortgage. After this, its customers wanted to use the money to make home improvements or to gift to their children.

Broader benefits to society

Meanwhile, equity release adviser, Key, said its own figures suggested ‘age proofing’ homes was  a key driver to taking out equity release whilst more than a quarter of its customers were gifting some or all of the proceeds to their family and friends to help them meet financial goals.

Will Hale, CEO at Key, said this demonstrated the positive role equity release could play in intergenerational wealth transfer and highlighted the broader benefits to society.

Trends such as these have played a major role in the growth of the equity release market in the last few years, and 2019 has been no exception. The figures release today by the ERC revealed in the first three months of 2019, £936 million of property wealth was unlocked by more than 20,000 customers.

This is the busiest start to any year that the equity release market has ever experienced.

Growing demand

David Burrowes, chairman of the ERC, said: “Demand for equity release is not only growing but broadening, with property wealth being used to meet a growing range of needs in later life.

“Today’s competitive market is helping thousands of homeowners to make flexible use of their property assets to tackle a host of financial challenges, not just on their own behalf but also on behalf of family members.”

He added that customers now had access to hundreds of product options combining various features to suit different circumstances and these were backed by product safeguards including the right to remain in their own homes without risk of repossession for missing a repayment.

Meanwhile Will Hale of Key said property wealth will play an increasingly central role in retirement planning and also help people to meet later life costs such as care.

He said: “The growth in equity release product features also means customers now have more choice and flexibility in how they use their wealth with options such as the ability to serve interest, to make ad-hoc capital repayments and to protect a portion of the property for inheritance purposes increasing the appeal of the proposition to an ever-more diverse range of customers.

“However, in a more complex product landscape it is essential that customers receive quality specialist support as good advice is key to ensuring the best possible outcomes.”

Top drivers for equity release market activity identified by ERC members (Source: Equity Release Council)