New customer inflows sees double digit growth for equity release. Should you unlock cash from your property?

Increasing numbers of older homeowners are accessing equity release products to support their later-life needs and even bypass NHS waiting lists.

Higher interest rates and slowing house price growth had reduced the attractiveness of equity release in recent years but the latest industry data suggests consumers have been returning to the product in recent months, especially as the cost of retirement soars.

Figures from the Equity Release Council (ERC) show total lending increased by 15% to £578 million between the first and second quarter of 2024, while new equity release customers rose by 12%. There was a 4% quarterly rise in returning customers.

It makes the second quarter the busiest three-month period for the market since the third quarter of 2023.

This has been helped by the rates on lifetime mortgages – the most common equity release product – dropping slightly from highs of 8% since the start of the year.

However, total lending is down 13% annually and the rate of new customers has dropped by 22%, suggesting there is still some hesitation towards the product.

“Following a period of economic uncertainty, we are starting to see consumer confidence gradually return to the market with increasing numbers of new customers choosing to use their housing equity to support their needs in later life,” says David Burrowes, chair of the Equity Release Council.

“The pick-up in activity between the first and second quarters is a welcome reversal of the downward trend seen one year ago. There is a long way to go to unlock the market’s full potential, but there are reassuring signs in these figures that we are turning the corner and acclimatising to this unfamiliar interest-rate environment after years of rock-bottom rates."

What are people using equity release for?

Equity release lets homeowners over age 55 access the cash locked up in the property typically through a lifetime mortgage.

Borrowers can take a lump sum and then reserve the rest to access at a later date so they only owe interest on what they drawdown.

The ERC highlighted that new borrowers are making larger initial withdrawals than last year and are keeping less in reserve, suggesting people are using their advance to meet a specific need and reserving a modest amount for future use.

Repayments and interest are usually rolled up and are only repayable once the borrower dies or moves into a care home.

Paying off existing mortgages - particularly interest-only loans - is the main driver but borrowers are also using the product to either leave a gift for loved ones or to fund home improvements, the ERC said.

The product even appears to be filling gaps in access to healthcare amid reduced NHS services and long waiting lists.

“Due to NHS delays as a result of the pandemic, we've also seen people turning to equity release to fund hip or knee replacements,” says Scott Gallacher, director at financial advisory firm Rowley Turton.”

“There's little point having capital tied up in your home but being unable to enjoy your retirement due to a dodgy hip or knee.”

He has also seen people use the product to fund solar panels so they can reduce their energy bills .

The risks of equity release

Equity release is a useful product if you are looking to access finance later in life and don’t fit a traditional lender’s requirements.

The industry has faced criticism in recent years though for high fees and unclear product terms, but it has tried to improve its image with more flexible and transparent products.

Lifetime mortgages are priced higher than standard mortgage rates at between 7% and 8% compared with around 5% for a traditional home loan.

The main risks are leaving your loved ones with a bill once you pass away or move into care– usually meaning the family home has to be sold – and ultimately limiting the inheritance you can leave.

Some modern-day equity release products let borrowers make repayments and you can usually reserve a portion of the proceeds of the property sale to leave as an inheritance, which as Turton adds is “more of a concern for your children than you.”