Homeowners tap into record equity release to beat squeeze

A RECORD £1.6bn was cashed out of properties in just three months as experts warn homeowners are using their housing equity to cover day-today costs.

More than 200 people a day are taking out equity release loans, according to figures published by the Equity Release Council, as asset-rich, cashpoor consumers grapple with the huge rise in living costs.

A total £3.1bn has been unlocked from older people’s homes so far in 2022, 36pc more than the previous record of £2.3bn in the first half of 2021. Meanwhile, lump sum lifetime mortgages have become more popular than drawdown plans for the first time in 13 years.

In the second quarter of 2022, the 54pc of plans were lump sum loans, compared to 45pc for the same period in 2021. The average amount released as a lump sum has also increased slightly, from £129,558 last year to £132,331.

Andy Wilson, a financial adviser, said the shift in preference for lump sums was “a little disturbing”. With a lump sum plan – which allows homeowners to withdraw all of the cash at once – the interest is compounded year-on-year, whereas with a drawdown plan interest is only paid on the money actually taken. This can have a “profound effect” on how much is finally owed when the borrower dies or the property is sold, Mr Wilson said.

The increased popularity of lump sum loans shows that many over-55s are struggling to keep up with mortgage repayments as interest rates rise.

This is in addition to equity release interest rates hitting a six-year high of 5.63pc, according to analyst Moneyfacts.