Why is equity release becoming more popular with your clients?

Recent reports demonstrate how equity release lending has rocketed

The rate of equity release lending has excelled expectations by jumping an impressive 11% on an annual basis, to a reported £710 million in the early stages of 2015. Equity release lending is becoming one of the domineering choices in terms of financial planning within wills, along with other options such as a flexi-access drawdown.

It is reported that the popularity of the option stems from being able to collect large amounts of money that are exempt from tax. The once popular method of collecting money in a lump sum has been proven to hinder earnings. To put it in perspective, the growth of drawdown products has been rising since 2007, and are now the preference of the majority.

The research that was carried out by the Equity Release Council, highlights comparisons with the significant rise as similar figures were prevalent in 2014. During the same period in 2014, equity release lending shared its biggest increase since 2002, hitting £641 million.

It has recently been a busy period for equity release lending, as nearly 10,000 new plans have been negotiated and agreed in each of the previous four half-year periods. Along with the new plans, flexi-access drawdown options have also experienced a substantial rise in popularity.

With average equity release rate figures in the July period averaging at around 5.97%, promising signs for consumers were prevalent due to the figure being 0.55% lower than at the end of 2014. The decrease in interest rates has demonstrated the biggest decrease across mainstream borrowing apart from personal loans. Even with the substantial decrease, equity release lending is still viewed as a more expensive option, as a lifetime mortgage can end up costing three times more than what is borrowed, after 20 years. Other schemes such as the home reversion scheme demand up to 70% of a property’s value for a minor increase in funds.

Should the option of equity release be as attractive considering the figures?

The research that was carried out has demonstrated how drawdown products have overtaken lump sums in popularity. With current standings in terms of taxation, is this surprising? In the early stages of 2015, the option of a drawdown made up 65% of all equity release products.

Could this lead to a total neglect in collecting in a lump sum?

Equity Release Council Chairman Nigel Waterson, has credited the popularity of drawdown products due to the protection they give, and the monthly payment options. With equity release lending allowing monthly payments, could this coupled with the rise in living costs have made this option more appealing?