Equity release is a product that, in the past, advisers have approached with some caution, given the way that interest can roll up over time.
But the equity release market has come a long way in just a few years and has proved it can be a useful way for some clients to free up the equity in their property in order to pay for home improvements, or a holiday.
For some homeowners, a lifetime mortgage will be a suitable option for them and many of the products now available boast more competitive rates.
“With life expectancy increasing, there is a growing need for equity release solutions,” observes Jonathan Harris, managing director of mortgage broker Forensic Property Finance.
This is borne out in recent figures published by the Equity Release Council, revealing that homeowners accessed £1.06bn of property wealth via equity release in the first quarter of this year – a year-on-year increase of 14 per cent.
“These schemes have gone through a revolution in recent years, with more innovative products allied to near-‘normal' mortgage interest rates and the ability to service interest, thereby avoiding rolling up, if preferred,” he adds.
A broader, more flexible market
Alex Edmans, head of retirement at Saga Personal Finance, agrees that the market has changed.
“The big difference in the market now, versus a few years back, is the flexibility that’s been added to equity release products,” she explains.
“You see plenty of products now with the ability to repay up to 10 per cent of the capital borrowed without early repayment charges alongside the normal interest payments. Inheritance protections have been added to lots of plans as well, giving further certainty.”
Ms Edmans adds that these kinds of add-on enable clients to manage the equity release debt.
Another development has been the growing interest in drawdown facilities.
Figures from the Equity Release Council for the first quarter of 2020 showed that drawdown lifetime mortgages remained the most popular type of new plan agreed, with the number of new drawdown plans totalling 6,267.
The average size of the first instalment of new drawdown plans rose 2 per cent from the fourth quarter of 2019 to reach £68,492.
These more flexible options suit the needs of a variety of clients and demonstrate a broadening of the lifetime mortgage market, according to Simon Gray, managing director of HUB Financial Solutions.
“A drawdown loan, where cash is taken when needed rather than as an upfront lump sum, is one way to reduce the speed at which interest is added to the loan,” he explains.
“Modern plans have options that allow borrowers to make either full or partial interest payments, and in some cases the more interest they pay, the lower the interest rate. They can have a ‘payment holiday’ or stop paying interest when they want.”
He has seen increasing demand from people wanting to make regular interest payments.