Equity release has seen a slowdown since the Iran war began. (Image: Getty)
The number of older people using their homes to fund their retirement through equity release has started to slow, as rising interest rates and wider economic uncertainty put them off.
In recent years, a growing number of older homeowners have taken the opportunity to turn equity in their property into cash. Equity release allows the over-55s to unlock money tied up in their home without moving, while retaining the right to live there for life. The most common route is a lifetime mortgage, where you borrow against your property but don’t make monthly repayments.
Instead, the interest rolls up, and the loan is repaid from the sale of your home when you die or move into care. The money raised can transform retirement, but it’s also a long-term commitment and can significantly eat into the value of your estate, which may be a problem for loved ones expecting an inheritance.
Latest figures from industry trade body the Equity Release Council (ERC) suggest many older people are hesitating, with total lending falling 9% over the last quarter to £574 million, while customer numbers also slipped.
ERC chair David Burrowes said enquiries remain steady, but the number of people following through has slipped. He said: “Advisers are reporting strong levels of interest, but customers are taking more time and, in some cases, pausing decisions altogether.”
Interest rates are much higher than a few years ago, and that makes equity release more expensive. The longer you live, the more that rolled-up interest grows, and it can mount up quickly.
The conflict in Iran is expected to push interest rates even higher, and many people are holding back as they wait to see how this plays out.
Burrowes suggested demand may recover as conditions stabilise and delayed cases begin to complete. He said: “Housing wealth continues to play an important role in supporting financial resilience later in life.”
Anyone considering equity release today needs to tread carefully. Some may be tempted to lock into a deal before rates rise further. But your home is almost certainly your biggest asset, and once you release equity, schemes can’t really be unwound.
Richard Pike, sales and marketing director at Phoebus Software, said the recent dip in activity is hardly surprising, given today’s uncertainty. He said: “Equity release adviser feedback is pointing to a stronger pipeline, which suggests that activity could begin to recover as confidence stabilises.”
He added: “Accessing wealth from your property is a major financial decision that needs to be considered very carefully.”
Anyone approaching equity release should take time to understand exactly what it involves. ERC members do include valuable protections, such as the no-negative equity guarantee, which means you will never owe more than your home is worth. Some plans allow partial repayments, others are far less flexible.
It is also vital to speak to family before going ahead. Equity release will reduce the inheritance you leave, and relatives may have views or alternatives you have not considered, such as downsizing or using other savings.
Take regulated financial advice from someone who specialises in equity release, and do not feel pressured into signing anything quickly. This is a complex product designed for the long term, with set-up fees of around £1,500. If the slowdown makes people think more carefully, that’s no bad thing.
