Steep rise in equity release - as Britons respond to inheritance tax change

More British homeowners are opting for equity release, a report has found. There's been four successive quarters of growth recorded by the equity release market.

The Equity Release Council reported a 32% increase between the first quarter of 2024 and the same period this year.

It is the fourth successive quarter of growth recorded by this market.

David Forsdyke, head of later life finance at Knight Frank Finance, said: "Older homeowners are borrowing more to cover their cost of living, which has risen sharply in the past five years.

Many are asset-rich but cash-poor - they have plenty of equity in their homes but perhaps their pensions don't stretch to cover their living expenses.

Equity release offers a solution whereby they can draw down small amounts to top up their income. Others simply borrow to gift money to their children or grandchildren."

Changes to inheritance tax announced by the government last year are also causing homeowners to change behaviour.

Last October, the chancellor said inherited pensions, which are currently not counted for inheritance tax purposes, will be included from April 2027. Farmers will also have significantly more inheritance tax liability.

"Among the fastest growing parts of the market is wealthy homeowners with sufficient levels of income but concerns about inheritance tax," Forsdyke said.

"They are raising funds through equity release to move funds into more inheritance-tax efficient investments, perhaps through their beneficiaries."

Equity Release & Lifetime Mortgages A Guide

Equity Release

Equity release allows homeowners, aged 55 and over, to access the equity tied up in their property without having to sell their home. This can provide a source of income or a lump sum to help fund retirement, pay for home improvements, or cover other expenses.

Lifetime Mortgages

A lifetime mortgage is the most common form of equity release. It allows homeowners to borrow money against the value of their home while retaining ownership. Here’s how it works:

• Loan Amount: Homeowners can borrow a percentage of their home's value, usually between 20% to 60%, depending on their age and the property's value.

• Interest: Interest is charged on the loan amount, but it is rolled up over time, meaning no monthly repayments are required. The loan, plus interest, is repaid when the homeowner passes away or moves into long-term care.

• Ownership: The homeowner retains full ownership of the property and can continue to live there for as long as they wish.

• Repayment: The total amount owed is typically repaid from the sale of the home after the homeowner's death or when they move out.

If you would like to find out more about releasing the equity in your home, why not contact us today to arrange a free consultation.