Blog > What do near-record house prices mean for equity release?

What do near-record house prices mean for equity release?

By Richard Groom • 18th October 2024 • 3 min read

Homeowners aged 55+ can now unlock more of their property wealth

Written in line with our editorial policy.

The latest Halifax House Price Index release shows that the average UK property price rose to £293,399 in September, just a few pounds away from reaching record levels. This is good news for people considering equity release, since your house value determines how much money you can access.

The September house price average is just £108 below the June 2022 record high of £293,507. It’s also 4.7% higher than the September 2023 average, as a further indication that house prices are bouncing back.

This means that homeowners aged 55+ will typically be able to unlock more of their home’s wealth with equity release now than was possible a year or two ago.

How does equity release work? 

The most common form of equity release is a lifetime mortgage – a form of loan secured on your property. A key benefit is that you don’t have to make any monthly payments after borrowing on your home. 

Instead, you can leave the interest to roll up until you pass away or move into long-term care. At this point your home is usually put up for sale to repay your loan plus any accrued interest.

Equity release is typically available to homeowners aged 55+ with a property worth at least £70,000. You can use the money you release however you wish, once any outstanding mortgage or loan secured on your property has been cleared.

What is ‘loan to value’?

The loan to value (LTV) is the relationship between how much tax-free cash you can release and the value of your property. For example, if your property is worth £100,000 and the equity release provider offers you a maximum LTV of 30%, you can release £30,000 – either through a lump sum lifetime mortgage or over time through a drawdown lifetime mortgage. The rebound in UK property prices therefore has a potential impact on the amount you might be able to release. 

Let’s take the example of a couple in their seventies with a property that was valued at £300,000 a year ago. If they were offered a maximum release at an LTV of 30%, they could have released £90,000.

Based on the average 4.7% annual house price increase reported by Halifax, the property would now be worth £314,100. With the same LTV of 30% available, the couple could now release £94,230.

This is just a simplified example based on the UK average house price increase. A number of factors affect how much you will be able to release, including your age and your own property’s value, type and location. 

Please note also that lenders typically offer a lower equity release interest rate for smaller LTVs. You may therefore be able to reduce the interest rate by releasing less than the maximum available to you.

To find out how much you might be able to release, use our instant-result equity release calculator, or call us to arrange tailored quotations from leading providers. Our selected advisers will also help you assess the suitability of equity release and the different options available. Call us on 0808 178 3055 or request a call back and we’ll arrange an appointment for you.

How is the Halifax House Price Index calculated?

The Halifax House Price Index is the country’s longest running monthly house price series with UK-wide data going back to January 1983. Halifax use their data to calculate a standardised house price and property price movements on a like-for-like basis. They calculate the annual change figure by comparing the current month’s seasonally adjusted figure with the same month a year earlier.

Speaking about the latest data, Halifax Head of Mortgages Amanda Bryden said: “Market conditions have steadily improved over the summer and into early autumn. Mortgage affordability has been easing thanks to strong wage growth and falling interest rates. This has boosted confidence among potential buyers, with the number of mortgages agreed up over 40% in the last year and now at their highest level since July 2022.”

She did however add a note of caution about the short-term future of the property market: “While improved mortgage affordability should continue to support buyer activity – boosted by anticipated further cuts to interest rates – housing costs remain a challenge for many. As a result we expect property price growth over the rest of this year and into next to remain modest.”

Source:

Halifax data: Halifax House Price Index September 2024. Halifax. Accessed 14 October 2024.

About Richard Groom. A writer with 20+ years’ experience across several sectors including financial services, Richard has a passion for writing clear and simple content on even the most complex of subjects. In his spare time, Richard loves exploring the hills and mountains of the UK on long walks with his faithful cocker spaniel. Follow Richard on LinkedIn

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