Growing numbers of older borrowers unlocking property wealth

A lifetime mortgage is a type of equity release scheme which allows you to unlock some of the value of your property whilst you continue to live in it. The main difference between a lifetime mortgage and a standard mortgage that monthly payments are not required. The mortgage only must be repaid upon the death of the last remaining borrower or when they move into long term care.

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As no monthly payments are made, the interest charged rolls over the lifetime of the mortgage, meaning the amount borrowers owe at the end of the mortgage will be considerably more than the amount they borrowed. However, many lenders will allow borrowers to make full or partial interest payments either on a monthly or ad-hoc basis so they can keep their borrowing costs down.

David Burrowes, chair of the Equity Release Council, said: “As consumer demand stabilises, the industry will continue to support older homeowners ‘needs through product innovation and flexibility. The average loan sizes of initial drawdowns have grown by 8%, with customers making use of reserve facilities to manage borrowing efficiently over time. This demonstrates the versatility of equity release in addressing diverse financial goals, from home improvements to supplementing retirement income.”

Rising living costs this April could see later life borrowing increase further. Council tax, car tax, water and energy bills are all going up this month, placing household finances under even greater pressure.

Steeper household bills can be particularly difficult for pensioners on fixed incomes, who often find themselves cash poor, but asset rich if they own a property.

According to the Equity Release Council, the trade body for the equity release sector, average loan sizes continued to increase for both drawdown and lump sum lifetime mortgages in the final three months of 2024, helped by customers’ available equity being lifted by a 3.3% rise in average UK house prices over the last year.

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Lorna Shah, Managing Director, Retail Retirement at Legal & General said "Many retirees are not able to maintain the lifestyle they want with their existing pension pots alone. This will only become a greater challenge as people live longer and have to meet increased costs, such as those associated with residential care. Property wealth, using products like equity release, could increasingly be integrated into retirement planning in the future, as a larger number of homeowners turn to the value held in their bricks and mortar to bolster their retirement funds.”

If you’re considering equity release, you must seek professional financial advice first, as there are several downsides to consider. These include the fact that unlocking some of your property wealth will reduce the value of any inheritance you might have planned to leave, and it could also affect your entitlement to any means-tested benefits you might be claiming.

It’s therefore a good idea to weigh up all the pros and cons very carefully first, and to discuss your plans with family members, so they are aware how your use of equity release could affect them too.