Equity release lending reached highest recorded level in 2014
PUBLISHED: 18:38 21 January 2015 | UPDATED: 18:38 21 January 2015
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Equity release is the only way that many property rich, cash poor London pensioners can help their children on to the property ladder, according to a leading north London financial adviser.
Gary Plein’s pre-equity release checklist
Are you getting as much money as you should be?
If you want to release equity to supplement your income, it’s worth checking if you might be eligible for additional state benefits, or pension.
What savings do you have?
With interest rates as they are at the moment, it’s often more financially effective to use savings than borrow money.
Could you move?
Downsizing could be a much safer way of releasing a lump sum. I always advise people to sell and move somewhere smaller if they possibly can.
Have you included your children in the decision?
Whenever we work for parents, we always want to make sure their children understand what’s going on.
Gary Plein, principle and adviser at Aspire Independent Financial Planners LLP in Finchley, warned that releasing equity can cause debt to accumulate rapidly, after a report by the Equity Release Council showed that the total value of equity release lending reached record levels last year.
Equity release lending amounted to £1.38 billion in 2014, the highest annual figure since records began and 14 per cent higher than the previous high in 2007.
Customer numbers also grew for four consecutive years, reaching a high of 21,336.
Just over a third of new equity release customers in 2014 opted for lump sum products, while 66 per cent chose drawdown products.
This suggests that the majority of people are using equity release to supplement retirement income, with the next biggest sector providing support to children.
Geoff Charles, CEO of equity release adviser firm Bower Retirement Services, said: “Gone are the days when equity release was perceived as the black sheep of retirement finance.
“Now, this growing sector is becoming far more mainstream – as customers learn the benefits of releasing some of their housing wealth and as new lenders come to the party with more equity release offerings.
“Our own advisers predict that the market could double in size in the near future, as equity release becomes firmly embedded into the retirement finance landscape.”
However Mr Plein sounded a cautionary note. He said: “I always try and tell people to sell and move into a smaller property rather than do an equity release.
“Often, although it may be better for them to move, they won’t. They’d rather stay in their home.
“But people do need to be aware that the debt can last 25 years – you don’t know when someone’s going to die – meaning that the amount owed could double or even quadruple. If you take out a £100,000 loan today, in 20 years time could be £400,000 because of the interest.
“For some people it can be a stressful thing to do. They’re often in tears because they have no other way to help their children financially now, but they know they’re decreasing the amount of inheritance they’ll get.”