Equity release surges amid UK citizens adjusting to inheritance tax modifications
Dive into the Booming Equity Release Trend Among British Homeowners
Homeowners in the UK are embracing equity release at an astounding rate, as reported by the Equity Release Council. This trend has seen a staggering 32% increase between Q1 2024 and the same quarter this year, marking the fourth consecutive quarter of growth in this market.
David Forsdyke, head of later life finance at Knight Frank Finance, sheds light on the situation: "Many elderly homeowners are finding themselves asset-rich but cash-poor. Equity release offers a solution, allowing them to draw down funds to top up their income or gift money to loved ones."
Here's a quick rundown of what equity release entails:
Equity release refers to accessing funds from your home without having to sell the property. You can opt for a lump sum or several smaller payments. There are two ways to go about it:
- Lifetime mortgage: This is the most common approach, involving a long-term loan secured against your property's value. You can choose to make repayments, but there is no monthly obligation. The loan, along with interest, must be repaid when you pass away or move into long-term care.
- Home reversion: This involves selling a portion or entirety of your home to a provider in exchange for a lump sum or regular payments. You get to continue living in the property until your passing, after which the provider gets a share of the property proceeds.
To be eligible for equity release, you must be 55 or older, own a UK property that serves as your main residence, and meet a minimum property value (usually around £75,000).
Changing inheritance tax rules have also prompted homeowners to seek alternative financial strategies. Last year, the chancellor announced that inherited pensions, which are currently exempt from inheritance tax, will be included starting from April 2027. Farmers will also face higher inheritance tax liabilities.
Forsdyke notes, "Wealthy homeowners with sufficient income but inheritance tax concerns are raising funds through equity release to move funds into more tax-efficient investments."
Equity release represents a significant shift in later-life financial planning, driven by factors such as rising living costs, maturing mortgages, market normalization, and product innovation. This trend has potential implications for intergenerational wealth transfer, market expansion, and the need for professional financial advice.
As with any financial decision, it's crucial to weigh the advantages and disadvantages carefully and seek professional advice before taking action. Compound interest risks, for example, can erode the value of your estate, while moving expenses may outweigh the benefits of downsizing. In any case, it's all about finding the best fit for your unique circumstances.
- The increase in equity release among UK homeowners, as observed by the Equity Release Council, shows a 32% surge between Q1 2024 and the same quarter this year, marking the fourth consecutive quarter of growth in this market.
- David Forsdyke, head of later life finance at Knight Frank Finance, highlights that many elderly homeowners are taking advantage of equity release, a financial strategy that allows them to draw down funds without selling their property, to top up their income or gift money to loved ones.
- To qualify for equity release, individuals must meet certain criteria, such as being 55 or older, owning a UK property that serves as their main residence, and meeting a minimum property value.
- Forsdyke points out that changing inheritance tax rules have led some wealthy homeowners to consider equity release as a strategy to move funds into more tax-efficient investments, signifying a significant shift in later-life financial planning.
