EQUITY RELEASE LIFELINE DURING COST OF LIVING CRISIS
7
SEPTEMBER, 2022
EQUITY RELEASE
With inflation now in double figures – hitting 10.1% in the 12 months to July1 – household budgets are being hit hard.
Cost cutting will be high on the agenda for many families struggling with the cost of living crisis.
The fact the energy price cap is to rise once again in October, as well as January 2023, means there’s no end in sight to soaring gas and electricity prices.
Since there’s only so much that can be done to strip back spending and reduce household bills, people are looking at ways of raising extra cash to help make ends meet.
Many over-55s are using the equity in their homes to release cash. The number of equity release plans agreed between April and June this year is up 26% on Q2 20212, which equates to 200 plans being agreed every day.
Another report3 highlighted that equity release funds currently account for one in every £90 spent by retired people within the UK.
As house prices rise, and interest rates on mortgages continue to rise, more and more older family members are also gifting funds from their housing equity to help younger generations members cope with higher bills.
Lump sum lifetime mortgages are becoming more popular. This recent trend is likely to be influenced by the fact that gifting money to younger family members and sharing property wealth across generations.
Raising cash via equity release has been a popular method in the past to help loved ones get on the property ladder too. A boost to a deposit could help cut the interest rate charged on their mortgage, making significant savings in the long term.
Other popular uses include home improvements, clearing debts – either an existing mortgage to eliminate the burden of making monthly repayments – or to consolidate unsecured debt.
“With inflation now in double figures – hitting 10.1% in the 12 months to July – household budgets are being hit hard.“
Some like to use it simply to establish a savings buffer.
Equity release plans have changed over the years, becoming far more flexible. For example, more than two thirds (68%) of equity release loans allow customers to make voluntary capital repayments with no early repayment charge4.
This reduces the final interest payment due when the property is sold, leaving more money for long-term care or to leave as inheritance.
The Equity Release Council has highlighted that by making penalty-free partial loan repayments in 2021, customers reduced their future interest costs by tens of millions of pounds[5].
It’s expected that the amount of money taken through equity release loans will grow as time goes on and people rely more heavily on equity release as a source of funds.
The Centre for Economics & Business Research (Cebr), forecast that the average amount of equity released is set to rise above £170,000 within the next five years, even taking into account an expected slowdown in house price growth[6].
INTERESTED IN EXPLORING EQUITY RELEASE?
It’s worth exploring equity release with a Tavistock specialist equity release adviser who can give specialist advice, which is vital to help people to make the right choices for their individual circumstances now and in the future. It’s also smart to discuss an existing equity release loan with an adviser to see if there’s a better deal available that could save you money on interest payments. You may even want to switch to a more flexible loan than you already have.
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This Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person.
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