Average homeowner now has five years of retirement income tied up in his property, thanks to the massive rise in house prices since 2017
- Equity release gives homeowners over age 55 access to their equity
- Homeowners in Wales have seen the biggest increase in what they can release
Homeowners in England and Wales can take an average of five years of retirement income from their homes, thanks to a 22 percent increase in property values since 2017.
According to analysis of house price data from the Office for National Statistics, by Legal & General Home Finance, homeowners have been able to release £67,200 in equity from their homes, an average increase of £12,000 in just five years.
Using the calculations of the Association for Pensions and Lifelong Savings, the amount corresponds to approximately five years of retirement income.
Equity release allows homeowners over the age of 55 to release money tax-free from their homes
Equity release allows homeowners age 55 or older to access a portion of the money tied up in their real estate tax-free.
Borrowers take out a loan on their home — usually up to 49 percent of its value — and they remain the sole owner.
It will be repaid with interest from their estate after they die or receive long-term care – although some plans have the option of paying back some of the money early.
If a borrower cleared £67,200 and decided to pay off the interest, the monthly interest payment last year would have been £215.60.
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Craig Brown, chief executive of Legal & General Home Finance, said: ‘For many homeowners over 55, the value of their property continues to prove to be one of their most important assets, so it comes as no surprise that a growing number of homeowners are considering what role it could play into their long-term financial planning.
“Planning for how real estate can play a role in that is something that we expect will become more common, whether through downsizing to free up money or freeing up money tied up in your home through products like lifetime mortgages .’
The average loan from Legal & General in 2022 was £115,000, indicating that homeowners with higher value properties are more likely to consider leveraging their home’s value through lifetime mortgages.
Thanks to rising house prices, homeowners can now extract more capital from their homes
The monthly interest on a home equity loan of this amount last year was £368.96, although that will vary depending on the product taken.
Homeowners in Wales have seen the biggest increases in the amount they can release from their homes – an average increase of 6 per cent over the past year and 32 per cent over the past five years.
The local authorities with the largest increase in wealth potential over the past five years are Blaenau Gwent (51 per cent), Leicester (45 per cent) and Manchester (43 per cent).
Despite the volatility of the market, house prices have continued to rise in recent years.
House prices rose by 4.1 per cent in the 12 months to March 2023, according to the Office for National Statistics, meaning £11,000 in value was added to the typical home.
However, higher interest rates mean it’s more expensive to extract value from your home than it was a year ago, now costing an average of £87,000.
The interest on these mortgages now averages 6.43 percent, compared to the average interest rate of 3.71 percent in the first half of 2022.
Today, rates vary between 5.61 percent and 8.37 percent depending on the provider, according to the Equity Release Council, which promotes the equity release industry and the rate-monitoring website Moneyfacts.