Older clients turn to housing wealth to prop up income

Older clients turn to housing wealth to prop up income

Older clients are increasingly turning to their housing wealth to bolster their income in retirement, either through an equity release product or by releasing cash through a remortgage, latest data has shown.

Figures from UK Finance, out last week (February 18), showed 16,800 borrowers had released cash via a remortgage transaction in December 2019.

This was a 6 per cent year-on-year increase compared to the 15,900 who remortgaged with additional borrowing in December 2018 and according to the figures, a hefty £50,700 was released on average through such remortgages.

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By comparison, the number of pound-for-pound remortgages — where the consumer does not borrow any more funds through the policy — remained flat at about 16,500 policies.

The number of remortgages in the buy-to-let space also increased by 2.3 per cent year-on-year to 13,300.

According to experts, this rise in remortgaging is partly attributable to the number of consumers using the process to release cash from their property to bolster their income.

Alice Watson, head of marketing for insurance at Canada Life, said: “The figures from UK Finance show older homeowners have become increasingly comfortable drawing on property wealth – from their own home or from their buy-to-let portfolio – to help support their lifestyles.

“The rise in buy-to-let remortgages also suggests landlords are keen to unlock the value in their portfolios. There are buy-to-let mortgage products available to over-55s which allow them to release cash tax-free, while leaving their portfolio intact and allowing them to continue to draw on its rental income.”

Dave Harris, chief executive at equity release lender More 2 Life, agreed, adding remortgaging was clearly growing in popularity.

He said: “For older homeowners in particular, a lack of suitable, affordable housing and high stamp duty costs can make the idea of downsizing seem unattractive. 

“Remortgaging, however, can allow them to renovate their existing home or adapt the property to suit their changing needs in retirement.”

The trend has been mirrored in the equity release space over the past few years. 

Data from the Equity Release Council shows older homeowners released about £15m from their properties each working day in 2019.

This added up to a hefty £3.92bn over the year, 170 per cent more than the £1.45bn released from property in 2015.

Equity release is a lifetime mortgage which allows consumers to ‘release’ cash from their home providing they have a certain amount of equity in the property and are above 55 years old.

The interest rate on the borrowed cash ‘rolls up’ — meaning the interest is added to the value of the loan — so the consumer does not pay anything except for fees until the loan is paid off, and the loan does not need to be paid until the customer either dies or moves into long-term care.

It has become more popular over the past few years as some homeowners heading into retirement struggled to stretch their pension pot to sustain their lifestyle, while others had interest-only mortgages with hefty capital to yet to pay.