Equity release: what you need to know

You may have heard whispers recently about the growing popularity of equity release among UK homeowners. According to figures gathered by the Equity Release Council, the value of equity release lending hit a UK record high in the third quarter of 2016. The total figure of over £570million is up 26% on this time last year, and means this type of lending is on course to break the £2billion barrier for the first time on record in 2016. Although draw down plans – where the equity is released in installments – remain the most popular overall, there has been a particularly noticeable spike of interest in lump sum mortgages.

The growing appeal of equity release is in part down to product innovation and increased competition. Lenders are offering increasingly creative and tailored deals, while a host of new entrants to the market have helped drive prices down.

The typical profile of someone looking to release equity is a ‘property rich, cash poor’ 50-something-year-old, approaching retirement and unwilling to scale back their lifestyle accordingly. That said, those who fit into this bracket are by no means the only ones who can benefit. In the wake of the Brexit vote, more and more homeowners are seeing equity release as a key part of their financial planning.

Clients explore equity release for all sorts of reasons. Some use the money to pay off an existing mortgage, and others fund home or garden improvements. Shorter term considerations include buying a new car or funding a magical holiday and, in recent years, buy to let properties have been a hugely popular investment.

Just as important is the strategy we have seen increasing numbers of our clients adopt in recent months. Post-Brexit uncertainty has prompted a handful of savvy equity releasers to invest funds with a bank instead of going down the more traditional buy to let avenue. For those who own unencumbered properties in prime Central London, releasing equity and investing it to generate an income is an attractive way of diversifying a portfolio. We have had several clients releasing sums of over £1million; many of them have chosen high-risk portfolios which offer them control over exactly where the funds are invested.

Enness mortgage broker Chris Treadwell recently worked on just such a case. ‘We managed to source excellent terms from a private bank, at a rate of 1.5% + 3 month LIBOR at 0.38% (totaling 1.88%), and a five-year interest only term with no early repayment charges,’ he says. ‘In this instance, the bank has taken a global outlook and factored in the client’s worldwide assets, not just the UK property in question. They were very open to considering these investments on favourable terms. With so many fantastic products on the market, we expect this trend for equity release to continue.’ 

If you would like to discuss your situation with one of our specialist brokers, please do get in touch. We have significant experience in this area and would be delighted to help you find the best possible solution.