Equity Release 

Interest-only mortgages drive equity release boom

Interest-only mortgages drive equity release boom

Interest-only mortgages have helped drive the equity release market to a record high, figures reveal.

Property wealth paid out £633m to pensioners during the first quarter of 2017 - up from £414m for the same period last year, while the number of plans rose from 5,447 to 8,604.

The data, from Key Retirement’s first quarter Equity Release Market Monitor, revealed more than one in five (22 per cent) customers used property wealth to clear mortgage debt in the first three months of the year.

People are on average releasing £73,610 of property wealth, increasing to as much as £117,000 in London.

Most of the wealth is being used to fund home and garden improvements, with 62 per cent of customers releasing money to enhance their homes, nearly a third (32 per cent) using the cash to fund holidays and 30 per cent clearing credit card and loan debt.

But the use of equity release for mortgage repayment is expected to increase, with around 10,000 borrowers a year between now and 2020 coming to the end of interest-only loans.

The average price of houses used for equity release was £322,400 - around 50 per cent more than the average UK house price of £217,502 - and almost £600,000 in London.

RegionNumber of plans sold Q1 2017Number of plans sold Q1 2016Total value released Q1 2017 (£ million)Total value released Q1 2016  (£ million)
South East2,4311,291£204,422,236£114,573,285
South West1,044654£80,350,398£49,902,911
North West691518£38,872,371£29,764,729
East Midlands681390£39,950,089£21,152,450
East Anglia592376£38,120,793£25,127,067
Yorkshire & Humberside560376£30,356,684£20,363,748
West Midlands517379£34,931,047£21,497,001
North East207146£11,089,145£8,252,952
Northern Ireland6145£3,538,882£2,291,168

Dean Mirfin, technical director of Key Retirement, said: “With more than one in five releasing equity from their homes to repay mortgages as the first major wave of interest-only mortgage maturities hits, it is certain that demand from people facing capital repayment deadlines will look to equity release as a solution.

“That makes it even more important for mortgage lenders to start engaging with equity release as a potential solution for their customers. Many are, but unfortunately not enough.”

Tracey Lucas, equity release adviser at Needham Mortgage Centre in East Anglia, said: “If you put on one side the clients looking to move house, then maybe 65 per cent of the enquiries I have had over the past six weeks were from people who have got to the end of an interest-only mortgage and feel there is no other option.”

Responding to Mr Mirfin’s comment that mortgage lenders need to start engaging with equity release, she called for more dialogue within the industry as a whole.

“We have to keep an open mind,” Ms Lucas said. “I am getting a lot of leads from IFAs who specialise in inheritance tax, and mortgage advisers do the same.

“Where I speak to clients and suspect there is an alternative to equity release, I let them know.”