Equity release take-up falls

15 April 2008 12:00am

The number of retired people unlocking money from their homes fell during the first quarter of the year as problems in the wider economy hit their confidence, figures show.

The number of equity release plans taken out fell by 16.5% compared with the first three months of 2007, with 6,009 of retired people unlocking money, compared with 7,196 in 2007, according to advisers Key Retirement Solutions.

But the group said despite the difficult economic and housing market conditions, the equity release market remains buoyant, with people unlocking a total of £293 million during the period, although this was 9% less than in 2007. There was also an increase in the average amount people withdrew, with this rising to £53,000, up from £48,000 a year earlier.

The group said that while people's confidence is likely to have been hit by the credit crunch, the equity release market does not appear to be suffering from the same problems as mainstream lenders, and it has not seen an upheaval in either rates or providers' ability to lend money.

Dean Mirfin, business development director at Key Retirement Solutions, said: "It has been a difficult start to the year for many people as the fall-out of the credit crunch has hit home and we are faced with volatile and uncertain economic and market conditions.

"Gross lending on traditional home loans is down 6% year on year in February alone, and it is unsurprising that we have also seen a slight downturn in the number of equity release plans taken out across the whole of the first quarter this year, compared to last year.

"However, the equity release market remains strong, with more than £290 million released from UK homes over the last quarter."

Equity release enables retired homeowners to unlock money from their property without having to move. They can do this either by taking out a lifetime mortgage which is not repaid until they die or move, or by selling a portion of their property to a home reversion company.

The group said drawdown plans continued to be the most popular equity release vehicle, increasing by 29% during the year to account for 62% of all plans taken out during the first quarter. Drawdown plans enable people to decide how much money they want to unlock at the outset, but they then draw the money in stages as they need it, reducing the amount of interest they pay.

Home reversion plans accounted for 5% of all schemes taken out during the first quarter, with standard lifetime mortgages accounting for the rest.

© The Press Association