Fuelled by strong house price growth and a desire to live life to the full in retirement, demand for equity release plans increased by 18 per cent in the first half of 2007 compared to the previous year, whilst the total amount released by consumers grew by a third.
People are also accessing this equity in different ways. The demand for a drawdown facility whereby a consumer decides a maximum amount of equity to release and then draws down the cash in stages rather than the traditional lump-sum lifetime mortgage has risen by 225 per cent in the last year alone.
This surge has been partially attributed to the number of lenders now offering this option, with three new ones recently stepping into the arena, alongside the fact that the borrower can come back for more at a later date if they so wish. Home reversion plans have seen a corresponding dip in popularity and now account for just 6 per cent of all plans taken out.
remortgage here
The Celts are quite partial to equity release right now after the number of plans taken out in Scotland and Northern Ireland jumped by 233 per cent and 202 per cent respectively since last year largely due to the sharp rise in house prices the countries have seen.
However homeowners must account for the repercussions this new debt might have on their finances if interest rates keep rising. Eamonn Rice, chief executive of mform.co.uk, said: The vast majority of homeowners have made thousands of pounds through rising property prices but in releasing some of this, their debt has risen. We are concerned that some of these people may have released equity from their homes because they are facing financial difficulties but with rising interest rates, their situation could become worse.
The average age of those opting for equity release has also dropped from 71 to 70, showing that pensioners at the head of the property boom are increasingly keen on using the profits they have made from their property to enjoy their retirement.
find a mortgage adviser here
Dean Mirfin, business development director at Key Retirement Solutions, believes that although this drop in average age is encouraging, it indicates that more people are relying on their home to supplement their pension: While a one year fall in the average age of equity release consumers may seem a small change, we strongly believe that this is an indication of how the market will continue to change in the future. This trend reflects the greater availability of equity release plans from 55 years (previously the minimum was typically 60) and is also indicative of the fact that fewer people are retiring on good pensions and final salary benefits. We predict more people will need to supplement their pensions at an earlier age, with many using the assets held in their home to do so.
However Home & Capital is urging tempted homeowners to think twice before opting for an unregulated type of equity release. Sale & Rent schemes, which involve selling a property to a company who then rent it back to seller, are portrayed as a quick-fix solution but offer homeowners little security once the property has been sold.
find a best-buy mortgage
Some debt-ridden pensioners see these schemes as their ticket out, however the tenancy agreements they will enter into can last as little as six months and are not necessarily renewed once they come to an end.
These schemes are not currently being regulated by the FSA either, meaning that there is no one to oversee their activities. Without regulation there is no guarantee that the valuation will be performed independently or fairly and so people often receive less than 80 percent of the true market value for their home.
Nigel Hare-Scott, sales director of Home & Capital advised: Companies offering Sale & Rent schemes are potentially predators preying on elderly, vulnerable people. People should be aware they face losing their homes if they sign up to one there are safer alternatives.
