Money
Retirement
Equity release popularity grows
Equity release plans are becoming increasingly popular with older people who want to boost their income in retirement, writes Holly Thomas
Household budgets under the strain of rising council tax and energy bills can get help by using the cash locked up in their homes.
The plans allow homeowners to take a cash lump sum or income out of a property but keep the right to live in it rent-free until death.
The UK equity release industry body, SHIP (Safe Home Income Plans), revealed that over the past six months the number of people taking out plans has rocketed.
During this time, older people released more than £660 million from their homes, compared to just under £500 million in the same time in 2006. Drawdown mortgages were responsible for the most accelerated growth of all equity release business for SHIP members.
These plans now account for almost 47 per cent of all new equity release plans sold compared to 21 per cent over the same period last year. Drawdown offers a regular income, rather than a lump sum as has been favoured in the past.
Jason Hemmings at Albannach Financial Management said: "This could easily reflect people's growing concerns with how they fund their retirement since underfunded pensions, living longer, low annuity rates and soaring personal debt all mean many people need some extra cash."
There are two types of plan. Lifetime mortgages allow homeowners to get a loan against the value of their property. Interest on the loan is rolled up and repayments, plus the capital lump sum, are made when the property is sold, usually after the homeowner dies or goes into care.
Home reversion schemes involve selling part of a home - usually at far less than its market value - to a company in return for cash and the right to remain resident until death.
Traditionally, only lifetime mortgage providers have offered drawdown facilities, allowing homeowners to borrow additional funds at a later date as needed. But a handful of home reversion schemes can now provide a drawdown option.
Jon King, chief executive of SHIP said: "As customers become aware of the growing flexibility within equity release, and the options available to them it seems more people are becoming aware of the benefits such plans can offer and see equity release as a real alternative to help fund their retirement.
"Drawdown plans now account for roughly half of all new business done and almost half of all lifetime mortgage plans."
* Holly Thomas is Deputy Personal Finance Editor at the Daily Express and Sunday Express. Holly's views represent her own opinions and are for general information only. Always seek independent financial advice.
