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Equity release borrowing soared by a third in 2022 amid cost of living crisis

Increased equity release: older homeowners release cash from their properties to manage the cost of living crisis

Capital-released loans to new customers increased by 31% in 2022 compared to the previous year, with £6.3 billion of cash drawn down on properties.

The number of equity release plans taken out during the year also increased by 29%, bringing the total to 52,295, according to equity release broker Key.

The typical customer has released £106,806 of equity from the value of their home, he said, 2% more than the average of £104,792 in 2021.

Increased equity release: older homeowners release cash from their properties to manage the cost of living crisis

Increased equity release: older homeowners release cash from their properties to manage the cost of living crisis

Yet despite the increase in the amount borrowed, the average mortgage loan-to-value ratio fell 1% to 28%. This was the result of rising real estate prices.

Capital release loans allow those over 55 to access some of the accumulated value in their home in the form of tax-free money. The money is to be repaid with interest through the sale of the property when they die or enter long-term care.

Borrowing with equity release was broadly in line with pre-2020 levels for the first nine months of 2022, Key said, after a recession during the pandemic.

However, there was a spike in activity in the wake of the September mini-budget, with mortgage rates hitting highs of over 6%.

The capital release is often used to pay off an existing mortgage initially, with the rest of the money left over to spend in retirement.

Cost of life

However, equity release interest rates were not immune to the sharp rise in borrowing following the mini-budget and the resulting chaos in the gilt market. This saw rates rise to 5.7% in the final three months of 2022 from 3.07% in the same period a year earlier.

Key also said older homeowners wanted to cushion the effects of rising inflation, which peaked at 11.1% in October.

Almost a third of borrowers who took out new capital release plans in 2022 (31%) used the money to pay off their debts, up from a quarter in 2021, while 27% used the money to pay off their existing mortgage.

>> Will we see mortgage rates drop below 4% this year?

Easing the pressure: Nearly a third of equity release clients used the money they released to pay off their debts

Nearly a third of equity release clients used the money they released to pay off their debts

Existing Capital Release customers took on £203m of additional borrowing in 2022, while £513m was accessed through drawdowns, a 44% increase on 2021.

Will Hale, Managing Director of Key, said: “As inflation begins to bite, people on fixed incomes or nearing retirement are considering how they can manage their biggest expenses – while still allowing for refunds. potential in the future.”

Jim Boyd, chief executive of the Equity Release Council, said: “These figures represent another significant step forward for a market that saw barely £1bn of lending activity a decade ago.”

Equity release: how it works and tips

To help readers consider equity release, This is Money has partnered with Age Partnership+, independent advisors specializing in retirement mortgages and equity release.

Age Partnership+ compares offers across the market and their advisors can help you determine if equity release is right for you – or if there are better options, such as downsizing.

Age Partnership+ advisers can also see if those with existing equity release agreements can save money by switching.

You can compare capital release rates and determine how much you could potentially borrow with This is Money’s and Age Partnership+’s new capital release comparison tool.

“Clearly the dust is still settling from the fall mini-budget. modern retirement planning are firmly intact.

“Any owner considering releasing equity in the current climate should seek financial and legal advice, working with a Board member, to ensure that any choice is well suited to their long-term needs.”

In recent years, some capital-released lenders have started to introduce new features, such as the ability for customers to repay part of the loan or interest before they die or be taken over, if they so choose. , to reduce what they owe.

In 2022, Key said the majority of equity release clients (63%) opted for plans with fixed prepayment fees, preferring to avoid the uncertainty of gilding or variable fees.

Many also choose increased flexibility, with 61% choosing downsizing protection in their product. This allows the borrower to prepay their loan without penalty charges if they move to another home that does not meet the lender’s loan requirements.

Additionally, 29% of borrowers added estate protection. This is when a borrower sets aside part of the value of their home to pass on to their loved ones.

Almost a quarter of funds released in 2022 were equity release mortgages. On average, customers transferred £132,240 of loans from 5.1% interest to 5.0%.

This is a very modest saving and significantly lower than the figures recorded in the third quarter of 2022, when customers fell from 5.1% to 3.6%.

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