Equity release mortgages are one of the most popular ways to release funds for retirement. However, they’re not without their problems – as the rising numbers of complaints to the Financial Ombudsman Service prove.

Here’s some information about the current equity release marketplace, and what it means for borrowers.

Equity release mortgages in recent years

The rise of equity release has been nothing short of stratospheric. In 2017, over £3 billion was loaned to customers, against the value of their properties. Since then, this amount has only got higher. By 2018, lending was up by 29%, and the following year, equity release mortgage loans were double what they’d been in 2016. In fact, 2018 marked the seventh year of successive growth of the market.

The evidence was clear. Consumers were increasingly keen to release value tied up in their homes, in exchange for cash to use in their retirement.

The facts and statistics about equity release

These facts provide insight into the equity release marketplace:

• An ageing population is a key driving force. According to the Office for National Statistics, the UK has an ageing population, with a growing percentage being over 65. As more people reach retirement age, more require funds to support their lifestyle.
• Lack of pension funds is another. Data shows that increasing numbers of people don’t have enough saved for their retirement, but do have plenty of equity tied up in their property. As such, releasing it is a tempting prospect.
• It’s become a more affordable option. Data analysts Moneyfacts found that the average overall rates for equity release mortgages had dropped (from February 2014 to February 2019) from 6.1% to 5.24%. This made them more affordable, and more appealing to consumers.
• There’s greater choice. The same analysts found that the range of products had increased significantly over time. In February 2014, there were 40 equity release mortgage products on the market. Five years later, this had risen to 201. Again, this is a notable driver in the mortgage product’s growth.

What’s the most popular form of equity release mortgage?

Lifetime equity release mortgages are the most popular, as they enable customers to draw on funds in staggered stages, and to make repayments if required. This flexibility appeals to consumers; for example, in the last quarter of 2017, 75% of the new mortgages agreed were ‘drawdown lifetime’.

According to the latest figures, average initial instalments are around £62,539, with returning customers taking out a further instalment of about £10,853.

Are they a good option?

The Equity Release Council offers some protection for consumers. For example, the no negative equity guarantee ensures that the borrower will never owe more than the value of their home. They also have a right to remain in the property for life.

However, the Financial Ombudsman Service continues to receive complaints about equity release mortgages. These complaints not only relate to the product itself, but the manner in which it was sold too. As with any loan, it’s wise to consider all the options available, and receive independent professional advice before making a commitment.

References

https://www.telegraph.co.uk/financial-services/retirement-solutions/equity-release-service/equity-release-schemes-popularity/
https://www.mortgagesolutions.co.uk/news/2020/04/21/equity-release-borrower-numbers-up-as-lending-static/
https://www.mortgagestrategy.co.uk/features/feature-the-rise-and-rise-of-equity-release/
https://www.financial-ombudsman.org.uk/consumers/complaints-can-help/mortgages/equity-release