Home owners using equity release to back up savings and boost pensions

British home owners are using their properties as a back-up savings account as the average amount of equity released in July hit a record £78,334, according to new figures.

The equity release market shows little sign of slowing down and owners are not just propping up their savings but also paying off mortgages and looking to cover pension deficits, says the report from equity release provider Responsible Equity Release.

With the average UK salary just under £28,000, home owners released equity from their homes totalling almost three times the average annual wage last month and the figures also show that home owners are taking advantage of innovation in the equity release sector to set up an additional borrowing facility which they can draw from if and when they need the money.

On average, home owners arranged an additional £37,000 in funds as a drawdown facility, on top of the equity already released and over the past three months, 41% more released equity from their homes than the previous three months.

Last month saw a 158% increase in the total amount of equity released, compared to July 2016. And the amount released in July 2017 was 10% up on June 2017.

Regionally, the North East saw the biggest change in July, with 203% more released in total by home owners compared to June. Scotland was next, with total amount of equity released up 59% in July compared to the previous month. Individually, North East home owners released 37% more equity in July versus June from £24,173 to £33,112.

London saw a 17% rise in the total amount of equity released by home owners in July compared to June, but the average amount released fell from a peak of £208,500 in June to £175,744 last month. The report says that this was probably due to the noticeable fall in house prices in the capital, which likely resulted in borrowers being more cautious about the amount of money they took out of their homes.

‘People, especially those in retirement, are increasingly turning to their homes as a back-up savings account. With no signs that the Bank of England are going to hike interest rates any time soon, this low interest rate environment has killed the savings hopes of many,’ said Steve Wilkie, managing director at Responsible Equity Release.

‘Equity release has stepped up and established itself as a vital financial product for thousands of people who are approaching retirement or have retired, and are now relying on their savings and investments, but unfortunately the income these investments generate doesn’t match their needs,’ he pointed out.

‘With the flexibility equity release now offers, such as the ability to drawdown from an additional borrowing facility, it is the one financial product that has adapted to meet the needs of the consumer,’ he added.

Meanwhile, separate research shows that record lows in lifetime mortgage rates are driving increased inquiries about switching plans. The report from Bower Retirement shows that 45% of advisers have seen a rise in clients reacting to reductions which have seen average rates hit an all-time low of 5.63% with some providers offering rates at 3.9%.

The analysis shows average rates have dropped 0.7% in the past year and the number of fixed-rate deals has increased by nearly 60% in the past two years but advisers believe rates need to fall further to maintain momentum in the market which saw an all-time high of £697 million in lending in the first three months of 2017, up 77% on the same period last year.

Some 39% of advisers surveyed said more rate cuts were needed while 67% want more lenders to launch into the market to increase competition and the research also shows 22% of its advisers are reporting a substantial rise in the value of homes owned by customers while 55% say property values have increased slightly in the past year. Around a quarter of advisers say customers’ average property value is now more than £400,000.

‘Equity release customers are benefiting from a virtuous circle with the record growth attracting more lenders who are cutting rates to compete and win business. Over the past few years rates have steadily fallen but lifetime mortgage rates are still being compared with mainstream mortgage rates which is a challenge for the industry and advisers,’ said Andrea Rozario, chief corporate officer at Bower Retirement.