The latest figures for equity release loans have reached the highest level since 2002, the year that records on these loans were first kept. The third quarter in 2014 has indicated a total lending amount of £375.5 million.
While there are still three months to go until the end of the year, the total borrowed throughout the first nine months is almost at the level it was for the whole of 2013.
Equity release – A popular method for freeing up cash in retirement
Many people today are retiring with a realisation that their pension is falling short of where they thought it would be. This, coupled with a healthy rise in house prices, has led to the increase in the number of people opting for equity release.
While there are cases of younger people opting to release equity from their homes, it is clear that retired people make up a significant percentage of those using this method to create a healthier cash-flow.
Equity release is most popular among those in their 60s and 70s
In many cases those who are retiring now or who have done so in the past few years are finding their plans for retirement do not cover the reality. While pension income may cover part of their outgoings it does not always cover them all. By opting to release equity from the value of their home this method provides a way of accessing thousands of pounds’ worth of cash that can make all the difference to how comfortable – or difficult – a retirement might be.
Another big reason why equity release has become so popular is tied up with plummeting savings values. Rock-bottom interest rates have severely dented many savings pots that were intended to tide people over in retirement. Similarly annuities do not provide anywhere near the annual income many would have expected several years ago.
Thus the option to release the equity held in a property with an ever-rising value makes good sense to many. In other cases it may be the only real option, although of course independent financial advice should always be sought before making such a big decision.
Will 2015 see an even higher lending amount for these loans?
It remains to be seen whether this is the case. However as long as house prices continue to rise and interest rates remain low, many retired people will see this as their best option. It is particularly telling that some 50% of those questioned in research performed by the Equity Release Council opted for equity release as a way of meeting everyday bills. While other reasons were also behind individual decisions, this one was by far the most popular.
While it is necessary to think carefully before opting for equity release, it is clearly the most appealing one for many pensioners to take. Since there can be a large amount of money tied up in any one property, it is understandable to view this as one of the most appealing ways to fund a retirement.