Number of retirees exploring pension freedoms and equity release is on the rise

According to several recent studies, those in retirement are enjoying a multi-billion-pound boom in income as they use equity release and pension freedoms.

New figures from the Equity Release Council (ERC) indicate that last year the number of people choosing to release money from their homes rose by around a quarter helping retirees to unlock £4 billion from property.

A separate study found that those aged 55 and over also released £8 billion under pension freedom reforms, a rise of almost 20 per cent on 2017. They were among the million savers who have embraced pension freedom since they were introduced in 2015.

The evidence from these studies hints that pension freedoms and equity release are becoming a mainstream method of raising money in later life to supplement pension income.

Equity release plans allow people to unlock the capital held in a property in a tax-free manner, while retaining the right to live in the home until the end of their life.

Most people use what are known as lifetime mortgages. These account for around a third of all mortgage types taken out by homeowners from their mid-50s onwards.

Under equity release, those aged 55 are typically able to borrow a maximum 18.5 per cent of the property value, rising to 31.5 per cent at age 70 and a whopping 47.1 per cent at 90.

In its study, the ERC found that during the last year more than 80,000 homeowners aged 55 or over collectively accessed £3.94 billion of property wealth – with Q4 2018 remaining the busiest quarter on record for equity release activity.

This trend looks likely to continue, with data from the first quarter of 2019 revealing that £936 million of property wealth has already been unlocked by 20,397 people.

Disclaimer: Releasing equity will reduce the value of the home and therefore the amount of inheritance available to pass on, may be more expensive in the long term than downsizing to a smaller property.

Link: Equity release market records busiest start to any year

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