Business & Investment

Equity release drawdowns plummet to one-fifth in 2020

People over the age of 55 have become more cautious about monetizing their homes, with drawdowns on stock releases reduced by more than a fifth last year.

Older homeowners were more cautious about withdrawing cash from their assets in 2020, as drawdowns from lifetime mortgages have fallen by more than a fifth.

According to the Equity Release Council, 21% fewer borrowers drew down from existing equity release pots last year and decided to deposit money with lenders instead.

The number of customers seeking further progress (existing lifetime mortgages plus additional borrowing) also fell by 11%.

Some people over the age of 55 are using equity release mortgages to give cash to enjoy retirement

Equity Release products are available to homeowners over the age of 55 and have access to cash based on the value of the home.

Funds are typically used for a variety of purposes, including additional retirement income, one-time expenses, lifestyle purchases, debt consolidation, long-term care payments, and gifts of money to family and friends.

They are known as “lifetime” mortgages because they are usually not repaid until the borrower dies or enters long-term care.

The average installment payment taken by drawdown customers who decided to access cash from the pot in the last quarter of 2020 was £ 11,520.

The figures also showed that last year, 10 percent fewer homeowners agreed to a new stock release plan.

A total of 40,337 new plans were agreed in 2020, compared to 44,870 in 2019.

This was affected by the confusion and delay caused by the pandemic. This is evident in the fact that activity fell to its lowest level in four years between April and June.

New equity release mortgage plan agreed quarterly between 2017 and 2020

New equity release mortgage plan agreed quarterly between 2017 and 2020

Between October and December, more than 55 homeowners agreed on 11,566 new initial public offering plans, and unprocessed cases during that period contributed to the busy end of the year.

The total amount of assets accessed through equity releases has been relatively stable in recent years.

Stock release “not decided overnight”

Throughout 2020, £ 3.89 billion of assets were released by new and repeaters. In contrast, 2019 was £ 3.92 billion and 2018 was £ 3.94 billion.

David Burrows, Chairman of the Equity Release Council, said: The unusual activity pattern of ‘2020 shows that some customers are spending time before accessing their assets.

“The new plan has been postponed since the beginning of the year, with fewer customers taking advantage of drawdown reserves or seeking extensions to existing loans. Stock release is not an overnight decision, but all alternatives. Should only be signed after considering.

Equity release mortgage rates are currently declining and may encourage more homeowners to take a step forward.

The average stock release rate for the fourth quarter of 2020 fell to 4.01% and the current minimum interest rate is 2.30%.

This is less than many 10-year fixed rate mortgages, but higher than most products with short fixed periods.

“In the right circumstances, access to fixed-life products at rates lower than average 10-year mortgages is attractive for modern equity releases, as well as the flexibility of interest payments and capital repayments for many products. It’s a big factor. We’re checking the total cost, “Barrows added.

However, lifetime mortgages are not suitable for everyone over the age of 55. Sticking to a traditional mortgage may be a better option, especially if the borrower’s situation is likely to change, or if the borrower may want to move home-for a stock release mortgage. This is because there are often significant early release fees associated with it.

Equity-release mortgages also have significant long-term costs, as interest is often worsened over the years rather than being paid monthly. This means that debt can be several times the amount of debt.

Borrowers may also limit their ability to release more cash or reduce their size in the future without paying back the full release of the shares.

Drawdown Lifetime Mortgage

Drawdown Equity Release Mortgages allow you to withdraw cash from your home as needed, rather than paying in one lump sum.

It is commonly used by people who need a little extra cash to enjoy retirement or pay off their debts rather than making large purchases.

The interest rate is set each time you release cash. However, interest is paid only on the money received, which slows the pace of interest accrual.

During 2020, new customers with drawdown lifetime mortgages increased the total size of their plans by 7%.

In the final quarter of this year, customers prepaid an average of £ 81,724 as their first installment payment and reserved £ 33,511 for future use.

Bulk Life Mortgage

Bulk Equity Release Mortgages give you access to all your cash from your home at once.

This is usually used by people who want to make certain large purchases, such as giving a family deposit a house deposit.

Interest rates can be fixed throughout your plan, so you can be confident about what you are borrowing.

Lump-sum lifetime mortgages accounted for 43% of the new plans agreed across 2020. This is the largest amount since 2009.

The average new one-time lifetime mortgage loan agreed in the final quarter of 2020 was £ 104,501, up 3 percent from the same period in 2019.

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Equity release drawdowns plummet to one-fifth in 2020

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