Older homeowners unlocked a record amount of value from their properties in the first three months of 2016, cashing in to the tune of £393m.
The figures show housing wealth is “centre stage in financial planning for later life”, said the Equity Release Council, which reported the biggest quarter for lending in its 25-year history.
The numbers were boosted by rising house prices, which have made homeowners feel more secure about the value of their homes, said the council’s chairman, Nigel Waterson, as well as by an increasing choice of products.
Lifetime mortgages, which allow homeowners aged 55 and over to borrow against their property but only pay off the loan when it is sold, allow those who are equity rich but cash poor to use the value built up in their house without moving.
A new breed of drawdown mortgages, which allow them to only take out money as and when they need it, have contributed to the popularity of this kind of lending in recent years.
The value of loans taken was up by 21% year-on-year, reflecting in part the rise in house prices in most parts of the country. At the same time the number of equity release plans taken out over the three months was up by just 6% on the previous year, but at 5,175 topped 5,000 for the first time since 2009. The average amount borrowed was just under £76,000.
Two-thirds of loans were drawdown mortgages, while the rest were predominantly lump-sum. Just 1% of the market was made up of reversion plans, where homeowners sell a part of their property for a lump sum below the market value.
Waterson said: “These latest figures represent a strong start to the year for the equity release market, and place housing wealth centre stage in financial planning for later life.”
Figures from the specialist advice company Key Retirement show that almost one in three equity release customers used money to clear debts on credit cards, loans and mortgages. Borrowers who had taken out interest-only mortgages in the past and have found themselves unable to move to another mainstream lender are among those turning to equity release loans, the company said.
For those using equity release to clear mortgages, the average amount paid off was £63,000.
Dean Mirfin, of Key Retirement, said: “One of the immediate factors driving the market is the interest-only crisis, with large numbers of retired homeowners who could lose their properties because they cannot afford to pay off their mortgages.
“As many as 40,000 interest-only mortgages will mature during 2016 but no one really knows the scale of shortfalls for repayment or how many homeowners have no repayment method in place at all. Many still have their heads in the sand.”
About 300,000 retirees who bought an annuity to pay out during their retirement are likely to take advantage of new rules that will allow them to sell on the investment, according to government figures published on Wednesday.
In a consultation on the secondary annuity market, HMRC estimated that 6% of the 5 million people who currently have an annuity would look to exchange their regular payment for cash, or another pension product. That level of take-up would bring in £900m in tax in the first two years after the market is scheduled to launch in 2017.
