Homeowners aged 55 and over are increasingly unlocking cash from their homes to purchase property and make home improvements.
The events of the last 12 months have influenced borrower behaviour and triggered a shift in the reasons why homeowners are releasing equity in favour of purchasing property and making property renovations.
The reasons why people unlock property wealth typically include:
- To repay an interest-only mortgage that is coming to the end of term
- Clear credit cards and loans
- Help family get onto the property ladder
- To go on holiday
- Reduce Inheritance Tax
- To split wealth and assets during divorce
The number one reason why borrowers release equity is to pay off an existing mortgage, and this remains the case.
However, there has been a significant increase in the number of borrowers releasing equity for property purchases and home improvements.
This is unsurprising given that during lockdown people have been spending far more time at home and haven’t been able to spend their money on holidays or socializing and so they have turned their attention toward their homes instead.
What’s more, the stamp duty holiday has sent the property market into a frenzy as homebuyers seek to take advantage of the huge tax saving opportunity, and in some cases, use the extra cash to make renovations.
Many equity release borrowers have been supporting family in making home purchases, and this trend has accelerated due to the stamp duty holiday.
The Equity Release Council’s Spring Market Report 2021 revealed that the total value of UK private property rose to £6 trillion – and £4.6 trillion excluding mortgage debt. This brings the average loan to value of a UK property to just 24.6 per cent – the lowest since before the financial crisis of 2008.
As property wealth continues to rise, equity release will play an increasingly vital role in later life financial planning.