Analysis: Dispel those equity release fallacies

ANDREA ROZARIO

We often hear that equity release is becoming more mainstream but there are stubborn misconceptions. The prevailing one – that all equity is surrendered when an equity release product is taken – can be overturned by some simple facts.

According to the Equity Release Market Report (Spring 2015), the drawdown lifetime mortgage remains the most popular product, making up two-thirds of completed plans. On average, those taking out such a mortgage released just 15.8 per cent of their available total.

The second-most popular product, the lump sum lifetime mortgage, makes up the majority of other new plans. When customers used it, on average only 28.1 per cent of equity was released.

Throughout the market, most customers release less than a third of their total equity. So on average at least, customers always retain some equity. For example, a lump sum customer who releases £70,000 from their £245,000 property at an interest rate of 6.49 per cent would not see their loan exceed their property value for 30 years, as long as property prices maintained a 2 per cent rise per annum. Even if house prices were to crash, the no negative equity guarantee provides further protection.