Taking out a lifetime mortgage as a means of gifting a deposit is a well-known use – Legal & General says they saw a growing number of enquiries about how people can use their own property wealth to help loved ones secure their first home.
But over-55s are increasingly using equity release to help themselves move home, according to more2life.
Data from the lender found a 116 per cent rise year-on-year in people using equity release to buy a property. Its chief executive officer, Dave Harris, says many turned to equity release to boost their buying power.
Harris says that unlocking property wealth is a “viable solution” to helping retirees get the home they want. Some borrowers aged 55 or more may not pass the affordability checks for a residential or retirement interest only mortgage.
Laura Healy, a mortgage and equity release adviser at Fairview Financial, says she looks at the best option overall, and agrees that equity release is “most definitely” a viable solution.
Like more2life, Healy has seen an increase in enquiries about using equity release to purchase a property. “It’s not the largest area we deal in, but it's certainly on the rise,” she notes.
Equity release was hands down the best way to go for them. They do not have any children so were not one bit worried about the compound interest and equity erosion Laura Healy, Fairview FinancialHealy recalls a client with a health condition who, with equity release, was able to purchase a property more suited to their needs, which ordinarily would have been outside of their budget.
“[Equity release] was hands down the best way to go for them. They do not have any children so were not one bit worried about the compound interest and equity erosion.
“Why not in this instance make your life comfortable? It was an easy decision for them,” she adds.
Martin Wade, a director at Access Equity Release whose advisers are authorised to consider residential mortgages as well, considers moving home as an equally legitimate motive to take out equity release compared to its more widely known uses.
“If you can release money to go on a world cruise, renovate or gift to children, then why shouldn’t you be able to harness your assets to move?” Wade asks.
“The purpose of equity release is to allow individuals who have amassed wealth in property to make that asset work in whichever way benefits them. Moving to a more suitable property or one that is perhaps geographically closer to family is a core need.”
While some may not be concerned about the possibility of roll-up interest eating away at their equity, David Forsdyke, head of later life finance at Knight Frank Finance, warns that borrowers need to ensure they enter into such arrangements with careful consideration of the future.
However, he agrees that equity release can be a viable solution for retirees looking to purchase their ideal property.
“Interest rates have come down dramatically compared to where they were three years ago. Our typical client is around 75 years old and we are securing borrowing rates well below 3 per cent on average,” Forsdyke says.
“Market leading rates have recently dropped back below 2.5 per cent, which means where the borrower chooses to allow interest to roll up, the debt will grow very slowly, doubling in size in around 25 years.”
Figures from Moneyfacts show a downward trend in the average equity release interest rate, from 6.20 per cent in January 2016 to 3.95 per cent in January 2021.
As well as more competitive interest rates, Andrew Kerry, financial solutions manager at StepChange, says product innovations mean clients can repay the interest on their lifetime mortgage rather than letting it roll up and increase their debt.
But according to more2life, many consumers and even some advisers do not realise that equity release is a viable way of funding a house move.
Kerry agrees: “This may be partly down to the marketing of equity release being primarily focusing on lifestyle choices, rather than the practicalities of moving home.”
While Kerry says equity release can be a viable option to enable consumers to find the right home for their later-life needs, he notes consideration should be given to the cost of maintaining a new property against the client staying in their existing home.
“It is also important to assess the requirements of the property for the long term,” Kerry adds. “Many consumers state that this is their final home move and a discussion needs to be conducted with the client to ensure that it will still be a suitable purchase when they are possibly affected by mobility or other health-related issues.”
This was the case for Healy. “It's a great idea in a situation like my client, where they have no one to leave their estate to. Equally even those with family, where they want to leave inheritance, can with some providers pay the interest each month and even some of the capital if they are in a position to do so.”
Healy also agrees there is a lack of awareness of the option to use a lifetime mortgage to fund a home move.
“I think the words ‘equity release’ make people think of just releasing equity from your current property. It’s something I share with local estate agents, as the more people that know, the more people we can help.”
Chloe Cheung is a features writer at FTAdviser
