Cashing in on their home’s value funded £3billion of spending by over-55s last year, as they used the money to top-up their income and cover day-to-day costs.
It is estimated that last year, one in every £90 spent by retired people domestically was a result of equity release, according to new figures from Legal & General and the Centre for Economics and Business Research.
As the cost of living crisis puts more pressure on pension pots the trend towards equity release, where owners can borrow against their home’s value, looks set to continue.
Market analysis by mortgage broker, Henry Dannell, shows that UK homeowners have already released equity to the tune of £1.4billion so far in 2022, with this figure estimated to hit almost £5.6billion by the end of the year.
During the first three months of this year, over 12,500 homeowners opted for a later life mortgages – a 21.4 per cent increase on the first quarter of 2021.
Equity release loans, also known as later in life mortgages, unlock the value built up in a home, allowing them to access it as tax-free cash.
They allow homeowners aged 55 and over to get a loan secured on their home, worth up to 60 per cent of its value, while still remaining the sole owner. They can use the money for anything they like.
The loan and interest accrued is then repaid through the sale of the property when the last surviving borrower dies or go into long-term care.
However, as the interest accumulates it can become a substantial part of a home’s value and so some deals offer the ability to pay off interest to protect inheritances.
While the majority of the cash released, £1.9billion, has been used to pay for occasional big purchases such as home improvements, furniture or even a new car, a significant amount, £1.3billion, is being used to cover the cost of day-to-day expenses including food, clothes and transport.
The remaining equity, around £480million, is expected to be spent on international holidays and financial planning.
Maintaining living standards in retirement (16 per cent) and paying off personal debt (16 per cent), are also cited as reasons for turning to the release.