SCOTS are leading the way when it comes to releasing equity from their homes to increase the cash they have to live on in retirement. Unlike their peers south of the Border, they appear undeterred by the credit crunch and uncertainty over house prices.
The latest UK equity release market monitor from specialist independent financial adviser (IFA) Key Retirement Solutions (KRS) revealed elderly people in Scotland raised £16 million from their homes in the first quarter of 2008, up 38 per cent from t
he same period last year.
This growth contrasts with the UK as a whole, where £293m was released, a drop from £321m in the same quarter of 2007.
Although the total number of equity release plans taken out in the first three months of this year dropped to 344 in Scotland from 350, the average value of each plan went up to £52,444 from £37,325. This is now only slightly lower than the UK average of £53,084.
The average age of a Scot releasing equity is 69, slightly higher than the 68 for the UK.
People say they raise cash for a number of reasons. The most common one is to make improvements to the home or garden – the motivation for 61 per cent of people. In second place on 35 per cent is to go on holiday and in third place on 33 per cent is to pay off debts.
KRS said the picture for Scotland is more optimistic than for many other parts of the UK.
Dean Mirfin, business development director at KRS, said: "Scotland is experiencing sustained growth in equity release and is one of the strongest parts of the UK."
But he admitted that the credit crunch is having an impact.
"It has been a difficult start to the year for many people as the fall out of the credit crunch has hit home and we are faced with volatile and uncertain economic and market conditions," explained Mirfin.
"Gross lending on traditional home loans is down 6 per cent year-on-year in February alone, and it is unsurprising that we have also seen a slight downturn in the number of equity release plans taken out across the whole of the first quarter this year, compared to last year. However, the equity release market remains strong.
"Unlike the mainstream mortgage market, we have not seen an upheaval in either rates or the ability of providers to lend. This is testament to the fact lenders are fully committed to the equity release market. We have seen positive increases in the number of inquiries as the quarter has progressed which once filtered through to the second quarter should reflect positively in the results at the half-way stage of the year.
"If there is to be a period of unsettled property prices, those considering equity release may well be wise to lock into a deal sooner rather than later. Interest rates are still very competitive with rates as low as 5.99 per cent fixed for life, and arranging the facility now may help reduce disappointment should there be any reduction in property prices.
"Drawdown, where people decide on a maximum amount of equity they want to release and then draw down the cash in stages when they want it, continues to be the favoured plan. With a 29 per cent increase year-on-year in the number of drawdown plans being taken out, it accounted for nearly two-thirds of all plans taken out in the first quarter of 2008."
The demand for home reversion plans – involving selling part or the home to a company in exchange for a lump sum – remained flat at 5 per cent. Standard lifetime mortgages, where a cash lump sum is given at the start with no monthly payments to meet, has declined from 54 per cent to 33 per cent of all plans taken out in the first quarter.
Mirfin added: "One of the benefits of a drawdown plan is that you only pay interest on the amount released, so interest could accumulate more slowly than with a regular lifetime mortgage. As such, it does not come as much of a surprise that more and more retirees choose this as their preferred plan."
And over the next years, the market is expected to grow even more. A recent report by the Council of Mortgage Lenders, entitled Please release me! A review of the equity release market in the UK, its potential and consumer expectations, examines the current state and future direction of the equity release market in the UK. It pointed out that fundamentals, such as growth in housing wealth, an ageing population and potential pension shortfalls mean there is huge potential for equity release.
Report author Peter Williams, an independent consultant, said: "Looking at the wider context it is clear that equity release will continue to grow."
The full article contains 821 words and appears in The Scotsman newspaper.
