Equity release schemes have previously been the domain of the older 55s, but new evidence shows that younger borrowers are seeking out lifetime mortgages as tougher lending regulations take their toll.
Eden Harper, an estate agents covering Brixton and Battersea believe that younger homeowners should always seek to sell their property rather than getting involved with these schemes, primarily because the interest rates can often be high and downsizing or releasing some of the equity to pay off the capital as interest-only loans come to an end; is often a preferable option.
New data shows that in the second half of 2014, younger borrowers turned to lifetime mortgages in the wake of the Mortgage Market Review (MMR) and the 2014 Budget pension announcement. The Spring 2015 edition of the Equity Release Market Report from the Equity Release Council shows that the market has grown and that the amount of new equity release customers between the ages of 55-64 has dropped from 24% in 2011 to 21% in 2013, pushing up the average customer’s age to 71. This trend continued into the last six months of 2014 when just 17% of new customers fell into the 55-64 age bracket.
The figures show that developments in the residential mortgage and pensions markets are having a massive impact on the profile of equity release customers. This is because the new Mortgage Market Review (MMR) regulations are making it harder and harder for people to access lending, especially if the desired term stretches beyond normal retirement age. Banks and other lenders are going through bank statements with fine tooth combs to ensure that spending isn’t out of control and also factoring in the potential of interest rate rises (although it’s unclear as to whether they’ll even increase if they move at all after reports about oil prices falling).
Paying off the last of an existing mortgage is one of the largest financial deadlines people have to face after 55, and the flexibility of equity release allows them to start from scratch and to also use housing wealth to meet financial demands.
Some interesting facts about equity release
Drawdown lifetime mortgages are the most popular product type among equity release customers.
66% of new customers chose a drawdown product last year, 34% opted for lump sums and less than 1% took out home reversion homes.
Lump sum customers released an average of £69,118, this is 176% larger than the average defined contribution pension post.
While we believe that equity release can provide a comfortable cushion for those looking for an extra source of funding later in life to compensate for pension pots, it’s very important for people to be aware of all of the pitfalls, especially if they are in a younger demographic. Soaring house prices have allowed younger people to benefit from enormous house wealth and this can frequently exceed the average single-defined pension pot.
However, selling is somewhat safer than opting for equity release – primarily because there are fewer complications and it can be a good opportunity to invest some of that well-built up capital in other housing projects!