Older homeowners are now more likely to spend equity release money on stabilising their finances than they were at the start of the year.
The percentage of over-55s using money borrowed from their property's wealth to pay off debts as they head into retirement has increased by 7% since Q1, according to equity release advisor Key.
At the same time, the number of customers choosing to spend their equity release payments on holidays and home improvements fell by the same amount- suggesting that lifestyle spending is losing out to a stronger desire to debt-proof family finances.
It is only appropriate that those customers exploring equity release during the time of the pandemic have been focused on shoring up their finances by repaying debt and supporting their wider families rather than looking to spend money on holidays or home and garden improvements. Many older consumers are likely to be extremely cautious about their choices around their spending for the foreseeable future – although we may see an increase in gifting to family members looking to get on, or move up, the housing ladder given the stamp duty holiday.said Key's CEO Will Hale
Family support is the only form of spending to remain unchanged since the start of the year, as 21% of all equity released continues to go towards gifting and helping out relatives.
Equity release, sometimes known as a 'lifetime mortgage', is a form of borrowing available to homeowners approaching retirement.
It allows people who have invested in bricks and mortar to borrow against the value of their home, effectively 'tapping in' to the cash locked up inside. The debt is repaid when they die or move into long-term care.
Once associated with financial hardship, equity release schemes have become more popular in the UK in recent years.
Their growing popularity is often attributed to a variety of different factors, including
an ageing population, longer life expectancy and changes to people's expectations of retirement.
Head of the UK's Equity Release Council David Burrowes has said the market's growth is partly down to a growing number of people realising the 'important role' their homes can play in retirement finances.
Since the start of 2020, over-55s have unlocked more than £1.42 billion in cash from their homes in equity release plans.
Yet despite the fact that demand for equity release has increased fourfold since the start of the decade, the market took a sure-fire hit amid lockdown.
Between March and June, there was a 27% drop in the number of new plans being taken out, worth nearly half of all the equity released in the first three months of the year.
This is despite rosy predictions made at the beginning of lockdown by the Equity Release Council chief, who speculated that the market would adapt to providing equity release services according to social distancing guidelines.
Instead, the new data from Key suggests that the decline in new plans being taken out was likely due to the effect of lockdown, which has limited brokers' capacity.
Demand has remained strong as more customers look to explore how housing equity could help them support them in later life and, as we move to more normal trading conditions, we are confident that these macro drivers will ensure that we will return to growth by year-end and into 2021.said Mr Hale
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