Pretty much everyone is aware that the property market has slowed, almost to a grinding halt in some regions. Some news outlets are floating figures indicating that sales could be down by as much as 20% in some parts of the UK. But while sales flounder, one area of the market that seems to be thriving is equity release. With continued press coverage and some reports indicating that the last quarter saw as much as £1 billion of equity release activity, why the increase? And how much of Medway’s housing market could be interested?
Equity release schemes are offered exclusively to over 55’s, allowing existing homeowners to extend their secured loan against their property. Low rates are making this type of lending increasingly affordable and therefore desirable, with lifetime mortgaging making it possible for people to unlock wealth and achieve some of their dreams at a younger age.
With my focus always on Medway, I was interested to find out what percentage of the population might be interested in this type of financing. According to KCC’s mid-year statistical bulletin, overall, Kent has an older age profile than the national average, with greater proportions of people aged 45 years or over. In Medway, over 55’s account for 27% of the 277,600 population with 75,300 people in Medway falling into eligibility bracket. But of course, not all of these are homeowners.
The housing stock bulletin released in June, is slightly more insightful. These statistics show that of the 105,450 privately owned homes in Medway, 30,792 of them are owned by over 55’s, which is around 29%.
Although property sales have slowed, average house prices in Medway have remained relatively stable despite Brexit threats, and – as I mentioned a few posts ago – there is still a slight upward trend in valuation prices. And while those valuations are good, equity release is still a viable option for releasing funds. So what is it that is drawing people to release equity like this?
Traditionally it seems this type of secured loan was used to make home improvements, to help pay care fees or to take once in a lifetime holidays. But now, intended use seems to be changing. It’s no longer just for self-indulgence: Parents are releasing cash from their homes so they can help their own children get on the property ladder. The first time buyer struggle is well documented and so is the help they are increasingly seeking from the “bank of mum and dad”. And that is where equity release steps in. Responsible Life reported last month that 21% of over-55s who have used equity release, have done so with this intention.
Other uses included new property purchases. Although that seems less likely in Medway, given that second home ownership has remained quite low the past few years, with only 360 second homes recorded in 2017.
With the average life expectancy in the UK extending to around 80 years for males and 82.9 years for females, it is no wonder that over 55’s are looking to get their hands on some cash to enjoy the next phase of life. From what I’ve read, the big downside of these schemes are the obviously reduction to inheritance being left for loved ones, and ensuring applicants know and understand the implications of the terms they sign up to. Sensibly – as with all financial decisions – anyone thinking about equity release should get sound financial advice and use a company who are registered with the Equity Release Council.
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