Is it the right time to get an equity release plan?

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The past four years have been extremely turbulent, with a pandemic followed by a cost-of-living crisis typified by surging inflation and interest rates.

With the UK slipping into recession at the end of 2023, it remains a difficult time for people who are trying to plan for their future without it costing them too much.

So, what do the current economic circumstances mean for you? Should you release equity from your home, or is it better to hold off for a more positive outlook for the country’s finances? Read on to find out.

Key findings from the Equity Release Council’s Q4 2023 report

A whopping £21 billion of mortgage debt is being paid off per quarter, which is £4bn more than pre-pandemic levels. This means it’s more likely that the demand for equity release is going to increase in the future.

Interest rates have played their part in that debt increase, but they’ve also made lifetime mortgages more competitive. During 2023, the gap between interest rates on an average lifetime mortgage and a standard residential mortgage dipped to just 1% for five-year products. To provide some context, the difference was 3% in 2013.

However, new customers have been withdrawing smaller amounts of equity – average loans have dropped from £130,000 to £100,000 compared to one year prior. For existing customers agreeing to further advances, average loan sizes shrank from £30,000 to £20,000.

What the experts say

Chair of the Equity Release Council David Burrowes thinks equity release remains worth considering if your pension prospects are not promising – although you should always seek professional advice before making any decisions.

Burrowes said: “People are taking smaller loans and a smaller percentage of their available equity. However, the stark outlook for people’s pension prospects means property wealth will remain a vital part of the equation to avoid a cost-of-retirement crisis.

“No one should turn a blind eye to equity release as an option for their later life financial planning, and it’s important they work with Council members to weigh up its practical benefits against all potential alternatives.”

What does it all mean?

If you’re struggling to figure out what to do, use an equity release calculator as a first step in getting to grips with your options.

Ultimately, the decision depends on how much equity you can release and whether you’re in a position to keep holding off in the hopes that interest rates drop. But if your mortgage term is ending soon, the reduced gap between a standard option and a lifetime mortgage means it might be worth considering.

Whatever you decide to do, be sure to seek financial advice from a qualified and accredited professional to get a full view of your options.

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