Equity release widens its market

Most other lending areas are tightening their belts, with stricter conditions, restricted availability and in some cases inflated rates, it is surprising to see the equity release sector beginning to broaden its horizons by way of lowering minimum ages and increasing maximum loan to values.

David Knight, mortgage analyst from Moneyfacts.co.uk, the leading independent financial comparison site, comments: “The last two weeks have seen two providers of equity release lifetime mortgages, New Life Mortgages and Prudential reducing the minimum age to which they offer their products to 55 from 60. In a market of around 20 providers, only Scottish BS has a lower age limit of 50; and three other lenders have a minimum age of 55.

“According to Key Retirement Solutions, the average age to take out a lifetime mortgage is around 70 years old. But with the current climate of insufficient pension pots many people are expected to need to supplement their pensions at an earlier age and one of the ways of doing this is through the equity found in their homes.

“While releasing equity earlier in life may offer an immediate solution for borrowers needing extra income, there is an enormous difference in the interest charge between taking out a equity release product at an earlier age.

“Releasing £50K from the value of your home at the age of 55; will see your debt grow to a staggering £240,818.96 by age 80 as shown in the example below. That’s almost five times the amount you originally borrowed!

“The following table shows outstanding rolled up debt, based on an original loan of £50K and the annualised rate of 6.49% offered by the Lifetime Mortgage Lump Sum Option from Prudential. The end of term is set at age 80.

“In our ‘live now, pay later’ culture, lenders are opening their products to a wider potential market. We are regularly hearing about increasing levels of debt and insufficient pension income. Following a decade of rising house prices, many of the baby boom generation, now approaching their retirement, are finding that the majority of their money is found in their homes.

“But in times of tightening lending conditions and the first signs of property prices falling, it’s perhaps an usual time to see this relaxation of criteria in a market dependent on growth and stability for its success. These lenders must be predicting a rosier picture for the medium and longer term.

“But, however tempting it may seem to dip into the equity in your home between the ages of 50 and 60, it is advisable to consider all your options. Taking on such large sums of debt needs serious thought and the help of an adviser is a must. Releasing the equity available in your home may also affect the amount of state benefits to which you are entitled.”