It’s fair to say that equity release has, in the past, endured a pretty lousy press. Many older equity release plans, particularly those taken out in the 1980s, seem to offer poor value for money and are often loaded with punitive charges.

Today, however, a combination of Financial Conduct Authority (FCA) regulation and the Equity Release Council (ERC) setting high standards for the industry means that people looking to release equity from their homes are protected by a consumer safeguards.

Transparent regulation and monitoring has provided a timely boost to the equity release market – a fact immediately evident in ERC statistics which show that during the third quarter of 2022 homeowners unlocked more than £1.7 billion from their property, the highest-ever quarterly figure. This money has been used for a variety of purposes, from boosting retirement income, paying for home improvements and replacing interest-only mortgages.

As a new year dawns, we consider the three most popular reasons why people are likely to use equity release during 2023.

Boosting retirement income

Thirteen years ago, base interest rates were on a steady downward trend, eventually settling at 0.5pc in March 2009. It wasn’t until March 2022 that they crept above this level to 0.75pc, although in mid-December the Bank of England increased rates again to 3.5pc.

Yet the effect of historically low interest rates on retirees has, in many instances, been devastating. As cash returns tumbled, some people were persuaded to invest in riskier areas which were not always as successful as they would have liked.

Fortunately, equity release can provide a timely boost to retirement income, particularly if an existing pension or income from savings (or both), doesn’t provide enough to live comfortably.

Nor is there any need to take a large, one-off lump sum. A drawdown lifetime mortgage enables homeowners to withdraw smaller sums over a period of time with interest only charged on the sum withdrawn. Such an arrangement could prove an ideal solution for people who need to boost their existing retirement income.

A lifetime mortgage can affect entitlement to means-tested benefits and will reduce the value of the estate. Accordingly, one of Equity Release Supermarket’s qualified equity release advisers will complete a benefit assessment and provide you with a personalised illustration of the features and risks prior to entering into any agreement.

Home improvements

Insurance giant Canada Life estimates that around half of their clients use equity release to make their homes safer and more comfortable. The data shows that 38pc use equity release to make home improvements designed to add value to their homes or simply for additional enjoyment. One in eight customers uses the funds to make adaptations for additional comfort and safety.

Research confirms that the overwhelming majority of people prefer to stay in their current property as they age rather than downsizing or moving into care and data suggests this trend will continue.

According to Equity Release Supermarket chief executive Mark Gregory: “The trend whereby people use the wealth stored in their homes to futureproof them is well established and, as the latest record ERC figures indicate, more people are thinking along similar lines.

“Our own research shows that people regularly use part of the tax-free funds released from their homes to invest in ‘value-added’ additions such as ramps, stairlifts and similar home improvements designed to make life easier should their health deteriorate.

“Clearly, an increasing number of customers consider their property wealth to be an important part of their financial portfolio and are using equity release almost as a form of savings. This has longer-term implications for an ageing population, especially as more of us will most likely need to fund our own later life care needs.”

Replacing an interest-only mortgage

Though they were once considered a great idea, particularly when sold with an endowment policy, interest-only mortgages have become something of a millstone. As their interest-only mortgage term nears its end, a significant number of people do not have the means to repay it, although equity release could provide an answer.

Not only could equity release succeed in replacing an interest-only mortgage, it could actually remove mortgage repayments altogether, as there’s no requirement to make any monthly payments once you have released the equity from your home.

Of course, interest will continue to accrue and compound with the equity release mortgage and this must be repaid when you move, enter into long-term care or upon death. However, the loan will never exceed the value of your home, so you cannot burden your heirs with any debt.

We’ve highlighted the most popular reasons for releasing equity from your property, but how you utilise the tax-free funds is entirely your decision. Furthermore, thanks to the unique, easy-to-use smartER search engine, designed and developed by Equity Release Supermarket, deals are no longer ‘off the shelf’ affairs. The company’s smartER research tool analyses more than 50 mortgage plans from across the later life market. Based upon your personal criteria, it sifts through more than 1,000 product variants to produce results showing exactly how much equity you could release from your home and the interest rates for which you qualify.

“We’re very proud of the smartER search engine,” adds Mr Gregory. “Not only does it complete all of the mortgage-related legwork, it’s incredibly simple to use.”

For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.

This column is for general information only and cannot be relied on as financial advice for individuals. Consult your professional adviser.