The main reasons people take equity release

According to figures from the Equity Release Council, the number of people releasing equity from their homes has risen to £326m, a 32% year-on-year increase and the highest level in a decade. Current speculation suggests this is down to one of two things, or a combination of both: a need to pay off debts, or rising house prices making more people asset rich and thus more comfortable releasing equity. But what could be driving people to release equity from such a valuable asset as property?

According to Nigel Waterson, chairman of the Equity Release Council, the primary reason for someone seeking a lump sum loan is to pay for some sort of home improvement, whether it's a necessity like a chairlift or a luxury like a conservatory. Nonetheless, sometimes it's a case of just trying to get by. Since 2013 the interest paid by banks and building societies has been slashed by close to £1 billion, and the combined value of UK pensions that has been lost is in excess of £400 billion. Such situations can create a scenario for many people that are struggling to make ends meet, especially for unexpected events or trying to clear debt before retirement. Similarly, people with small pension funds may choose to release equity and then treat it as a drawdown fund while deferring their state pension. Under current rules, the state pension increases by 10.4% each year that it is deferred, which many people consider a sensible option if they can have other money they can rely on in the meantime.

For many, it may seem an obvious solution to opt for a standard loan or to downsize, releasing money from the sale of the property. However, many people are either unable or unwilling to move, not least in the instance where the property has been their home for many years and is full of memories. Equity release allows them to unlock some of the wealth they have accumulated over the years through the property, without having to move.

Other people may turn to equity release in order to help younger family members onto the property ladder. According to the National Association of Estate Agents, just 3% of buyers are aged between 18 and 30, down from 12% in August 2013 - which sits in contrast with people aged 31 and 40, who make up 48% of the market. A rise in house prices, as well as more in-depth affordability tests unveiled in April, has made it more difficult to get started on the property ladder, and people eligible for pension release may decide to release some of their money to help their younger relatives to get started with a deposit.

Equity release can also create opportunities to enjoy life, using the money to travel or treat themselves. This could be particularly enticing to people who do not have any children to leave an inheritance to, or feel their property is valuable enough to release equity while still leaving something.

There are many reasons for taking equity release, and because it can be spent however the individual chooses, it can appeal to people in a range of different circumstances. As with any financial product, though, it is not suitable for everyone, and professional advice should be sought before proceeding with it.

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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section:

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