9:00am Saturday 18th August 2007
THE number of people unlocking wealth from their homes has jumped dramatically this year, with drawdown' mortgages particularly popular.
Rising UK property prices have added value to many homes in Britain and homeowners are cashing in on this by taking out equity release plans. This gives them extra cash to spend as and when they wish, as long as it is paid off at a later date.
From January to June this year, demand for equity release plans was a third higher than the same time last year, and some £662 million of wealth was released from British homes.
"Equity release is moving quickly into the mainstream of financial products," says David Black, principal banking consultant at financial research group Defaqto. "There is little doubt it will become ever more important as under-funded pensions and low annuity rates fuel demand."
The best known equity release products are lifetime mortgages and reversion schemes.
But drawdown lifetime mortgages have seen most growth this year, with demand more than tripling, according to new figures from specialist adviser Key Retirement Solutions.
Drawdown plans allow you to release money locked in your home in stages.
This contrasts to the one-off lump sum you receive with regular lifetime mortgages or reversion schemes. You can draw down money gradually throughout your lifetime, with minimum further advances as low as £2,000.
"The rise in people taking out drawdown plans in the last year alone has been astonishing but at the same time anticipated," says Dean Mirfin, business development director at Key Retirement Solutions. He says it is partly due to more lenders offering these plans and increased awareness among consumers.
The research also reveals there are regional trends among consumers taking out equity release plans.
Scotland and Northern Ireland saw the biggest jump in retirees taking out schemes - these regions also saw substantial increases in house prices over the last year.
Yet it was southeast England and London that saw the largest number of equity release plans taken out overall. In the southeast, plans had an average value of £60,000, while in London they were worth £80,000.
"As house prices in the UK, particularly in the southeast and London, have soared in the last decade many people in or nearing retirement are clearly finding themselves living inside what may now be their biggest and most valuable asset," says Mirfin.
And as more people choose to stay put in their homes to avoid the high costs associated with moving home and rising interest rates, they often need cash to improve, change and modernise their property.
Equity release plans are not for everyone. There are advantages and disadvantages attached to each type of plan, so it is vital to consult a specialist before you consider unlocking wealth from your home in this way.
Free copies of the Echo guide to releasing the wealth in your home, sponsored by Key Retirement Solutions, can be obtained by calling 0800 531 6028 (please quote ref. 11462W). Lines open 9am-5pm.
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