25 February 2013
Equity release drawdown mortgages increased by 27 per cent in value to £610m in 2012 with this type of borrowing accounting for a massive 66 per cent share of the market according to the latest equity release research from McCarthy Stone Money.
This is a 17 per cent increase in share of market value for equity release drawdown mortgages, from 2008, compared to a 16 per cent decrease in lump sum lifetime mortgages in the same four year period. Equity release drawdown mortgages allow homeowners to access the money tied up in their property money more flexibly, rather than just receiving a lump sum.
McCarthy Stone Money believes this growing preference for equity release drawdown mortgages is the result of both changing drivers for taking equity release and the availability of better, more flexible drawdown type equity release plans. Historically, equity release was typically taken to fund one-off, large purchases but with living costs continuing to rise, many people are finding that their pensions and savings are not sufficient to support their living costs.
With equity release drawdown plans, cash can be released over time, as and when you need it, and because you accrue interest on the funds only once you have taken them, this can reduce the amount you pay over time (compared to a lump sum lifetime mortgage).
The overall total value of the equity release market also rose 17 per cent to £925.7m in 2012, up from £788.6m in 2011 according to the Equity Release Council, the strongest year since 2009.
Says Alex Cross, Head of Product Management, McCarthy Stone:
“Prior to 2008, when property prices were continuing to grow rapidly, greater consumer confidence was driving people to take out single lump sums to fund cars, holidays and more luxury items.
“With the cost of living continuing to rise and the economy still stagnant, most of our customers are now being more cautious and are planning on taking smaller sums of equity over a longer period to either supplement their pension income, pay off unsecured debts, or interest only mortgages – as and when they need it.”
Interest on equity drawdown mortgages has fallen far more quickly than interest on lump sum equity release plans. In 2012, interest on drawdown mortgages fell to 5.99 per cent from 6.84 per cent in 2009, while interest on lump sum equity release mortgages has remained relatively static. In 2012, lump sum lifetime mortgage interest rates stood at 7.10 per cent and 7.09 per cent in 2009.* By tailoring released sums, consumers can also sometimes help to limit or avoid loss of means-tested benefits entitlement.
Many experts believe there has never been a better time to take out an equity release plan as both lower interest rates and growth in the sector has resulted in increased competiveness, a wider product choice for consumers and greater incentives.
The McCarthy Stone Money Equity Release service offers independent advice, searching the whole of the UK market to find the most suitable plan and access to exclusive and preferential plans not available anywhere else.
Adds Alex Cross: “We are working hard to increase awareness of the different types of equity release now available which can offer consumers a wide range of solutions as part of their retirement. And, if equity release isn’t right for you or your circumstances, then we or any responsible provider should tell you.”
*Aviva IFA Equity Release Historic Rates Table (August 2008 – December 2012).
Notes to Editors
Types of equity release schemes
Although there are many different plans available, they can all be split into four main categories of equity release schemes.
You release a lump sum from the value of your property, whilst maintaining 100% ownership of your home. This amount, plus any interest accrued, is repaid from the sale of your property when you pass away or move into long-term care.
Drawdown Lifetime Mortgage
This is similar to a lifetime mortgage, but with added flexibility. The cash can be released over time, as and when you need it. Because you only accrue interest on the funds once you have taken them, this can reduce the amount you pay over time (when compared with a lump sum).
Interest-Only Lifetime mortgage
This is like a standard lifetime mortgage; however, you make regular payments so that the amount you owe remains constant. This amount would then be paid from the sale of the home, typically once you have passed away.
Home Reversion Plan
Here, you sell some or all of your property in exchange for a lump sum of money, whilst maintaining the right to remain living in your home, rent free, for as long as you live.
McCarthy Stone Money provides financial planning services to people in later life.
The company offers a range of financial services that are tailored around the customer to enable them to make the right choices when making important decisions about how to support their retirement lifestyle:
• An annuities comparison service
• An equity release service
• Later Life Planning services such as Will writing and the preparation and registration of a Lasting Power of Attorney (Property & Finance), as well as thoughtful and cost-effective support with planning a funeral.