Equity release is on the rise: what does this mean for homeowners?

Equity release is on the rise: what does this mean for homeowners?

The new generations may be the most affected by the equity release.

Equity release, a way for those 55 and older to get cash out of their property without the need to move house, is becoming more common, and rising house prices are a double-edged sword for many families.

Older generations have seen the value of their homes rise as their children and grandchildren struggle to climb the property ladder. Now, to help their children buy a home of their own, many parents are turning to the value of their property.

With a growing number of offers and lower rates available. Two years ago, there were twice as many products on the market, and competition has driven rates down: the lowest interest rates now hover around 2.5%.

But the costs can add up, and critics warn it’s a high-risk measure. An investigation by Key, a stock-publishing advisory firm, found that between April 2020 and the end of June 2021, older homeowners withdrew £830 million from their homes and gifted it to their children or others so that they would use it in various ways. More than half, £425 million, was given to his children or other family members or friends to help them climb the property ladder.

Essential CEO Will Hale says the money has been effectively “recycled” and that one of the driving forces was the stamp tax holiday, which began phasing out fines in June.

“In recent years, the use of equity release to facilitate the transfer of wealth between generations has become increasingly popular,” he says.

While equity release can sometimes have the image of being a way for asset-rich seniors to leverage their property’s equity to finance luxuries like a new greenhouse or a cruise around the world, it can also allow people to provide life-change financial assistance to family and friends.

But for most people, the cheapest way to free up cash is to move to a smaller property or cheaper area.

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