Equity ReleaseJul 21 2021

Amount of equity homeowners can release jumps £13k

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Amount of equity homeowners can release jumps £13k

The amount of equity a homeowner can release from their property has jumped £13,000 in just two years as lenders loosened their borrowing criteria and house prices climbed.

UK house prices have risen by an average of £22,023 since 2019, according to the Office for National Statistics (ONS).

With over 55s able to release up to 60 per cent of their home’s equity - depending on their circumstances - that means an extra £13,213.80 could be available to them, compared to two years ago, according to analysis from life insurer SunLife.

"With increasing house values, many people could find themselves sitting on a healthy nest egg, should they need it," said Ian Atkinson, marketing director at SunLife.

Alice Watson, head of Canada’s Life’s equity release marketing and insurance division, said the property boost “plus increasingly competitive loan-to-values (LTV) products means there is now more equity available to release than ever before”.

But it isn’t just a case of rising house prices and competitive mortgage products, said Ellen Roome, director of mortgage and insurance provider The Finance Roome.

She told FTAdviser “lenders are getting more flexible” as demand for the product increases in line with people living longer and finding their pension aren’t enough to live on post-retirement. “This demand is only going to increase.”

At LV, an insurer which lends directly on its equity release products, customers are asking for more equity to be released - which “wouldn’t have been common” a few years ago, a spokesperson told FTAdviser.

The average lump sum amount borrowed by LV's equity release customers increased by almost 10 per cent in the first half of 2021.

The spokesperson added that customers are also looking to change the interest terms on their equity release policies, as more people prefer tackling interest as they go, rather than letting it roll out.

"As many over 55s have had their pensions savings and income affected by the pandemic, a rising number of customers are using the equity in their homes to pay off loans and outstanding mortgages (40 per cent in 2021 compared to 36 per cent in 2020)," they said.

Historically, the equity release industry has been fighting a battle to better its reputation, which took a knock in the eighties and nineties amid a number of scandals leaving people with big amounts of debt.

But of late, big names have jumped on the trend. Most recently, St James’s Place, which manages more than £135bn in client funds and has offered equity release products for years, joined the industry’s council.

Lenders are also saying “consumer confidence [is] return[ing]” to what is now being dubbed a “post-Covid economy”.

Yesterday (July 20), Key Group’s equity release lender, more2life, released data which suggested the UK’s over-55s will borrow £10bn more this year, with both secured and unsecured debt owed by the over-55s rising from £226bn in 2020 to £236bn in 2021.

Roome said one of the factors encouraging older generations to consider equity release was the “different quality of adviser” approaching them today. “People have exams behind them now,” she said. 

“The term ‘equity release’ still carries stigma. In essence, it can just be described as a long-term, interest-only mortgage.

"Sometimes we don’t call it equity release, and include the term later on once we’ve explained the product. It’s all about reassuring old people and making them feel safe.”

The Equity Release Council, founded back in 1991, has introduced a guarantee of no negative equity for its members to help dispel the stigma around the term.

But data shows consumers still feel in the dark. A study by Boon Brokers, released last month, found six out of ten homeowners aged over 55 would never consider equity release, with many admitting they still aren’t clear on what it is.