In August this year, we reported in our blog that the popularity of Equity Release was at its highest ever level, and the third quarter of 2017 has shown an even larger increase.
£824 million has been released from equity in the last quarter alone. This is officially the highest figure seen. Previously, quarter two of 2017 saw the highest figure at £701 million. The record previous to this was in the third quarter of 2016 at £572 million. These figures clearly show that the popularity of Equity Release is on the rise.
What is Equity Release:
Equity Release (or a Lifetime Mortgage) is an option for all home-owners over the age of 55. It allows you to borrow a sum of money against your property but, unlike a mortgage, you are not required to make any repayment. Instead, when you pass away or go into long term care, the money is repaid, plus interest, out of your estate or. through the sale of your property. This means that those in retirement do not need to rely solely on their pension, but can borrow money against the equity in their property.
Currently there are two main ways of accessing Equity Release. The first, and most common, is to take out one lump sum against the property. This allows free access to this sum and interest is accrued on the whole sum until it becomes repayable.
The second is a drawdown facility. Whilst not as common as the first, figures do show that this option is becoming more appealing. The drawdown facility allows you take out a lump sum against the property, in a similar way to the first option, but you only pay interest on the amount that you have already drawn down and, therefore, this option does have the potential to accrue less interest in the long run.
Advantages of Equity Release:
Equity Release is appealing to more and more people Equity Release allows you to access a lump sum of money that you can enjoy now, and you won’t have to pay back in your lifetime while you live in the property,
Disadvantages of Equity Release:
Whilst you won’t have to pay back any equity release funds while you remain living in your home, interest charges mean your beneficiaries won’t receive as large a monetary gift because the loan will be paid back out of the sale proceeds of your property, either when you move into long term care or on death. You can, however, alleviate against this by paying off the interest subject to any early repayment charges.
Most Equity Release companies will include an early repayment charge in their offer. This means that a fee may be payable (and often it isn’t a small amount) if you choose to repay above a certain amount of the loan early, for example if you wish to sell your property so that you can move to a new property.
For more information, legal support and advice please contact our Equity Release specialist Jane Elgar.