UK Homeowners Over 55 Increasingly Tapping Home Equity for Retirement Funds

The number of Britons aged over 55 utilizing equity release to access funds for retirement has increased, with a 4% rise in borrowing recorded between April and June, according to the Equity Release Council. A total of 13,489 people engaged in equity release schemes during this period, encompassing new borrowers, those taking additional funds from existing plans, and individuals withdrawing from drawdown pots.

Total lending through these schemes also saw an uptick, reaching £597 million, a 4% increase from the £574 million lent in the preceding three months. The strongest growth was observed among new customers, with 5,307 homeowners accessing their housing wealth for the first time, marking a 9% increase compared to the previous quarter. However, the average amount released as a lump sum decreased by 6%, with the typical borrower taking out £113,779. Initial drawdown borrowing, conversely, rose by 2% to £63,642.

Existing customers remained active, with a 12% increase in further advance customers, reaching 1,204. The number of returning drawdown customers remained relatively stable.

Equity release allows older homeowners to convert a portion of their home's value into cash without selling their property. The loan is typically repaid when the homeowner dies or moves into long-term care. However, the accumulating interest can make these loans expensive, particularly for those who live for many years after taking out the loan, and it can impact the inheritance left to beneficiaries.

Jim Boyd, chief executive officer of the Equity Release Council, noted the encouraging increase in activity amidst ongoing domestic and international uncertainty. He stated that new customer numbers have recovered to levels seen a year ago, with overall lending and customer activity showing quarterly growth. Boyd highlighted that the Financial Conduct Authority (FCA) recently referred to later-life lending as a significant financial pillar, alongside pensions, savings, and investments. He suggested that housing wealth is becoming a more integrated part of financial planning for retirement, supported by enhanced consumer protections, greater product flexibility, and access to quality advice.

Lifetime mortgages constitute over 99% of the equity release market. These allow homeowners aged 55 and above to secure a loan against their property while retaining ownership. The funds can be used for various purposes, including home improvements. If an outstanding mortgage exists when the equity release loan is taken, the loan must first be used to clear that mortgage.

Borrowers can choose between drawdown lifetime mortgages, which allow staged withdrawals as needed, or lump sum lifetime mortgages, providing all funds at once. Monthly payments are not typically required for equity release loans, with the balance settled upon the sale of the home. If no interest is repaid during the loan term, the interest accrues and is added to the principal balance, causing the total loan amount to increase over time.IMAGE8 Between April and June, the number of people borrowing via equity release rose by 4%