Equity release is still an area of personal finance which many homeowners feel unsure about, despite lending totalling £3.89 billion in 2020, research has found.
Research from Boon Brokers revealed that 67% of homeowners aged over 55 admit they’re not confident about what equity release is and how it works. 18% said they have been put off equity release due to horror stories. Web search trends which show that people searching ‘Is equity release is a good idea?’ has gone up 350% in the last 12 months and ‘How safe is equity release’ has increased by 56% in the last three months.
Yet despite that, 43% of homeowners over 55 say they would consider taking out an equity release product on their property. equity release, such as a lifetime mortgage, enables homeowners aged over 55 to release money from their property, whilst they continue to live in it. Up to 58% of the property value can be borrowed as a lump sum or a draw down.
Boon Brokers conducted independent research with almost 1,000 homeowners aged over 55, which revealed many didn’t have a clear understanding of how modern equity release products work. 8% understood the difference between a lifetime mortgage and a Home Reversion Plan, the two types of equity release available.
In addition, many potential borrowers were nervous about what their family might think. 12% admitted they have been put off releasing equity held in their home because they’re worried their families wouldn’t approve. However, when questioned about what they would be using any funds raised by equity release for, most said it would simply be to help with day-to-day living costs or to help their family. Boon Brokers has seen a rise in lifetime mortgage applications from parents wishing to gift their equity to help their children get onto the housing ladder.
The research revealed the top five uses for equity release funds were:
- To fund day-to-day retirement costs
- To help children/family financially
- To travel
- To pay for home or garden improvements
- To pay off debt
Men were twice as likely as women to want to use the money to travel and three times more likely to consider using it to pay off other debts.
Gerard Boon, founder and partner at Boon Brokers, said: “There are a lot of misunderstandings around modern equity release products, which can put people off fully exploring their options. It seems that for many people, they would be releasing the money just to help with day-to-day costs. It’s interesting that so many homeowners suspect their family would disapprove and yet from our experience, and this research, many applicants want to use the money to help their children.
“It’s a shame that equity release brokerages and lenders had a bad reputation in the past. It’s unsurprising that searches for ‘equity release companies to avoid’ are up 750% in the last year. Certainly, back when they launched, there were poor products which were mis-sold. However, nowadays there are safety measures in place to make sure, for example, that a homeowner never goes into negative equity. You should always choose a company which is registered with the FCA and is a member of the equity release Council.
“As part of the process borrowers must engage a solicitor to make sure they’re fully aware of the details of the product, and it’s worth working with a qualified, whole of market broker who can make sure you get the best possible deal for your circumstances.”
