Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

“Consumers may wish to use the wealth locked up in their home as a way of funding retirement, or even to ease the rising cost of living this year. The equity release market boomed in 2021, during a time of record-low rates in the sector and rising house prices, records show total lending reached a three-year high of £4.8 billion. However, interest rates charged on lifetime mortgages are rising this year, and this means unlocking equity out of a home may now be at a higher cost than if someone locked into a deal last year. Indeed, in March 2021 the average equity release rate hit a record-low of 3.86% but has since risen to 4.33%.

“Equity release can be a suitable option for consumers looking to pass on earlier inheritance to their children, perhaps to help them get onto the property ladder in the midst of rising house prices, concerns over the rising living costs, and higher mortgage interest rates. Plugging the pension gap may also be an option for those approaching retirement and, according to Canada Life, 30% of the over-55s with defined contribution pensions intend to release equity from their home to help fund retirement.

“Growing demand for equity release has encouraged lenders to adapt their range to suit an array of different circumstances. There are currently over 600 different lifetime mortgage options available to consumers, so navigating these could be a difficult process without advice. Consumers may be unsure whether to take a lump sum or drawdown, however, the latter may prove popular for those only looking to release wealth as and when they need it most to mitigate incurred interest. According to the Equity Release Council, during Q4 2021, 61% of new customers opted for drawdown lifetime mortgages, the highest percentage of the year and up from 59% in Q4 2020.

“Seeking advice from an independent broker is not only wise to assess all the options out there, but also to ensure it’s the right choice for both the homeowner and their relatives. Taking a lifetime mortgage will impact inheritance and while some homeowners may feel pressured to make a decision amid rising interest rates and living costs, careful thought and planning is a must before they make any arrangement.”