Is the record breaking Equity Release lending down to interest only mortgages?
Equity release lending to over 55s hit £384.3m in Quarter 2 2015 – the highest figure since records began. The Equity Release Council has released figures showing that those choosing to release property equity withdrew 18% more equity than in the previous quarter. Richard Espley Head of Equity Release considers the reasons behind these record breaking results.
“There has been much talk in the press recently, both consumer and financial, about the ‘ticking time-bomb’ of interest only mortgages. Indeed the Financial Conduct Authority (FCA) has estimated that some 600,000 interest only mortgages will have reached the end of their term by 2020 and 50% of those borrowers have no repayment vehicle in place whilst a third of the shortfalls are expected to be in excess of £50,000.
“However, financial experts are pointing to other factors in addition to interest only mortgages driving this growth in the Equity Release market. I share the view of many of these experts that some of this growth is being stimulated by a lack of pension provision and soaring house prices. Many over 55s who decide to release property equity do so because their pensions are inadequate to maintain a comfortable lifestyle.
“Whilst tougher borrowing conditions as a result of the Mortgage Market Review (MMR) have meant that the options open to interest only borrowers when their mortgages reach the end of their term are limited that’s only half the story – for some Equity Release is a lifeline enabling them to enjoy their retirement years.”
Content correct at time of publication