More than £4billion of retirement spending is set to be funded by equity release this year, with the figure predicted to more than double by the end of the decade, new data shows.
Equity release now funds one in every £90 spent domestically by retired people, according to research by insurer Legal & General and the Centre for Economics and Business Research (Cebr).
It found that equity release, which allows homeowners to gain access to capital tied up in their home, is predicted to account for £9.3billion of retirement spending by 2030 and hit £11.4billion by 2032.
The share of total property wealth held by the over 65s in the UK has increased from 28 per cent to 37 per cent in the past 12 years, which coupled with the rising value of property has led to a rise in older homeowners considering equity release to support them financially in retirement.
One in 20 homeowners use equity release to fund their retirement now, a figure that L&G and Cebr estimate will rise to one in 10, with the average amount of equity released set to rise above £170,000 within the next five years.
In terms of how retirees spend the money secured from equity release, the majority (£1.9billion) is spent on big purchases such as home improvements, furniture or new cars, while £1.3billion is spent on food, clothes, transport and entertainment.
The remaining £480million is spent on international holidays and financial planning.
The research also found that equity release is likely to play an increasingly important role in financing care-related expenses, with 19 per cent of prospective homeowners citing it as a consideration.
Craig Brown, chief executive of Legal & General Home Finance, said: “This shift towards using equity release reflects the boom in property values, which have made our homes such an important asset, but it also demonstrates how far the equity release market has come through the introduction of product innovations and how it has become a more suitable solution for a wider range of people.”
He added that equity release had now moved from “specialist product to a mainstream option”, and the impact of the equity release market is “more significant than just the spending power it gives to customers, it also makes a positive contribution to the UK economy”.