Why are more people releasing equity from their homes?

Big rise in Equity Release as Over-55s choose to release cash from homes. Q&A with Equity Release Expert, David Forsdyke.

The amount of wealth older people are releasing from their homes has almost doubled in two years according to the most recent report from the Equity Release Council (ERC). The figures show that a staggering £10 million has been withdrawn from UK property every day in the first quarter of 2018.

So what is driving the increase and is it a solution to ease pension fears for those approaching or already in retirement?

According to Equity Release expert David Forsdyke, the squeeze on pensions and the plight of first time buyers are just some of the factors behind the rise. David has been answering our questions on all things Equity Release.

Firstly, what do we mean by “releasing wealth from property?”

“The property you own is often your biggest financial asset. Equity is the value of your property minus any amount that you still owe on your mortgage and / or debts secured against your home. This equity amount or “wealth” if you like, can be accessed without having to move out of the property through equity release.”

Why are so many more people in the UK choosing to do this?

“There’s a variety reasons behind the increase.

More people aged 55 and over are finding themselves asset rich but cash poor. When you release equity you can spend the money how you wish so it can bring some balance in this situation.

Take the example of home improvements. For someone who wishes to stay in their home as they get older but cannot afford the work needed to repair or improve it, they may consider equity release.

Another common reason is wanting to help children or grandchildren onto the property ladder. The younger generations are struggling to buy property on their own and are getting help from parents and grandparents. This is a socio-economic trend that is adding to the rise in equity release.

The same is true of the pensions shortfall - many simply want to top up or desire to have a more comfortable life in retirement.

Is there a risk of negative equity?

The Equity Release Council requires members to give a ‘no negative equity guarantee’.  

Doesn’t equity release have a bad reputation?

Unfortunately there are still memories of the days when equity release was unregulated and consumers at that time had nowhere near the level of protection that is in place today. Thankfully consumers are now very well protected through regulation under the Financial Conduct Authority and the standards set by the Equity Release Council.

What are the downsides?

Equity release is not suitable for everyone. That is one of the reasons why advice is required in every case, so anybody who chooses to access money in this way has had a recommendation from a qualified adviser. Your adviser will help you carefully consider all the implications. There are several types of equity release products and each has different risks and benefits to consider. Ultimately, equity release reduces the amount of wealth in your home, so it will reduce the amount that your beneficiaries inherit from your estate. That is why specialist advice is necessary - to ensure that equity release is suitable and all of your individual circumstances and preferences are considered.

More questions about equity release?

David Forsdyke is the Equity Release Development Manager for Access Equity Release – a trading name of Your Mortgage Decisions Ltd – which is regulated by the Financial Conduct Authority FRN 459763. David worked for the Financial Conduct Authority as Senior Associate for six years and was a member if the Equity Release Council Standards Board (2016 to 2018).