2021 was an unprecedented year for the equity release industry. Not only was a record-breaking £4.8bn unlocked by homeowners across the UK, but interest rates were at historical lows.
2022 has already brought on significant industry shifts, both good and bad. But the big question is, is equity release a good idea in 2022? And, is equity release going up or down this year? Jason Stubbs, the founder of EveryInvestor, explores what to expect from the equity release industry in 2022.
Here’s his expert insight.
What is Equity Release?
Equity release is designed for UK-based homeowners over 55 to unlock the cash tied into their property. It’s available through 2 main products, a lifetime mortgage, and a home reversion scheme. Both plans allow you to receive the money in a lump sum, put it in a drawdown cash facility, or receive a tax-free salary spanning up to 25 years.
With a lifetime mortgage, you retain 100% property ownership, and you don’t need to make loan or interest repayments in your lifetime. You can make payments if you wish to, but any remaining loan will be paid off when you die or move to a care home.
With a home reversion scheme, you’ll sell all or a portion of your property below market value. When the last homeowner passes away, the home is sold, and the lender will claim their share.
2022 Equity Release Predictions
Most equity release experts predict that 2022 will be another year of growth for the industry. 80% believe it will be organic growth, while fewer expect another major expansion. The industry has become more flexible and attractive, making it a perfect opportunity for older homeowners.
Current Interest Rates
The equity release interest rates hit an insane low in 2021, with March presenting the lowest options yet. Homeowners could receive rates as low as 2.3%, with the average being 3.4%. 2022 has a different picture. Interest rates have increased, ranging between 3.1% and 6.80%. The reality is that interest rates are likely to rise, only to lower again in 2024.
One of the biggest shifts and the most exciting news for the equity release industry was announced by the Equity Release Council in January 2022. As we advance, all new lifetime mortgage products unlocked from 31 March 2022 must have the option for voluntary loan and interest repayments.
Why’s this important? In the past, homeowners would need to select an interest-only lifetime mortgage or a special plan offering up to 10% in annual loan repayments. If not, they would have no choice but for the interest to compound and everything to be repaid when they pass away or move to long-term care.
Now, lenders will be offering between 10% and 40% in voluntary annual loan repayments and the option of monthly interest repayments. Moreover, homeowners can stop and start the payments whenever they wish. This means that if you have the ability to do so, you could technically pay off your equity release loan within three to 10 years, which is a massive game-changer for the industry.
while we do think that increased interest rates are unlikely to put off some homeowners, we, like most experts, believe that the industry is set for another record-breaking year. The new announcement about voluntary repayments and the continuous growth in the sector makes equity release a good idea in 2022.
Contacting a whole market financial advisor specialising in equity release products is your best bet. That way, you can know if equity release is right for your circumstances and, if so, find the perfect product to suit your needs.
We do not doubt that the equity release industry is set for another exciting year in 2022.