Lifetime mortgage no longer the last resort

Pulling money out of homes to help fund retirements will become more than just a last resort, new research reveals.

A new report from Defaqto shows the combination of under-funded pensions, low annuity rates, and an aging population coupled with high house prices mean equity release products like lifetime mortgages and home reversion plans will become far more common.

But choice and confidence in equity release is currently held back as household names stay away from the market.

"A number of factors are coming together which will make equity release an increasingly sought-after retirement solution for many people," said David Black, Defaqto's head of banking.

"In particular, growing levels of pensioner debt combined with under-funded pensions and low annuity rates mean that equity release provides a genuine way forward for those struggling in retirement.

"Although it remains essential that people explore alternatives to equity release as well as its possible implications; equity release will become an increasingly relevant option in future retirement planning. It clearly won’t suit everyone but it will increasingly provide a solution for many people."

Factors driving up the use of equity release products such as lifetime mortgages and home reversion schemes include the current trend for interest-only mortgages and associated capital repayment plans, funding lifestyle aspirations such as a new car or holidays, securing an adequate income in retirement, funds for essential repairs and improvements to homes, to reduce the value of estates to minimise inheritance tax, and to give money to children and grandchildren for deposits on houses or school fees.

But Defaqto adds equity release products are complicated and homeowners should still consider all alternatives before taking them out, as well as finding expert advice and consulting their families before signing up to them.