Legal & General dominates equity release market

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Legal & General dominates equity release market
ByEmma Ann Hughes

Legal & General Home Finance was the largest provider of lifetime mortgages in the first half of the year, taking 30 per cent market share.

The provider reported today (9 August) that it lent £424.3m over the period, tapping into the growth of the equity release market.  

In the second quarter, equity release grew 36 per cent as people increasingly used property wealth to fund their retirement, figures from the Equity Release Council showed.

Ian Lane, private client lawyer at Hodge Jones & Allen, said that, technically, a lifetime mortgage is a secured consumer credit loan with security over property, which does not require repayments until the borrower’s house is sold.

Assuming house prices rise during the course of the loan, some part of the interest element will likely be covered by that increase, so the consumer is borrowing against present and future equity.

Rates on the products have fallen over the past year, with the average rate now at 5.53 per cent compared to 6.25 per cent 12 months ago, according to Moneyfacts.

Mr Lane said he commonly sees clients wanting to use equity release for holidays, gifts to family member or leisure activities, but warned it does not come without risk.

"These are very good reasons for considering an equity release mortgage, however it is important to understand they are not for everyone and can be a considerable gamble.

“For some, these mortgages are a great way of unlocking the value of their houses to better enjoy later life or help out their children.

"The lender can’t force you to sell your house, they simply expect the money plus interest to be repaid on the sale of your property, which may well be after your death.

"It is important however that those who enter into these arrangements do so with their eyes wide open to the potential pitfalls and ensure that it is the right thing for them.”

Philip Clark, independent mortgage adviser at Philip Clark, said that a lot of the people looking to take out lifetime mortgages now are those who took out interest-only mortgages back in the 1980s and 1990s.

“People took on interest-only mortgages and found that is the reason they still have a mortgage today.

"Equity release offers them the chance to remove some of that burden, but if part of the point of home ownership is to pass on their property as an inheritance, they may lose that.”

He added greater flexibility in the lifetime mortgages on offer today is to be welcomed, as consumers now have the option to overpay and reduce their balance.