Recent reports from various large stakeholders within the Housing market show that property prices are again on the increase. The Nationwide report recently published indicated a 9.8% increase year on year in certain geographical areas. Whatever the arguments may be regarding superficiality in the house price market and its effect on First Time Buyers, there can be no denying that this rise is a positive one for those in retirement or close to it who are home owners and wish to use an Equity Release Plan. From a strictly consumer transactional basis the plain fact is that the vehicle upon which the plan is based has an increased capital value and therefore the amount which can be released, at whatever % ltv is higher than before the rise in prices. This is especially important when one considers the ever increasing number of people who use Equity Release to clear unsecured and secured loans, the amount of these loans is sometimes too high to be paid due to ltv’s on plans. Without changing ltv’s the amounts which can be released from an equity release scheme increases.
Another factor to consider is the effect that house price inflation has on the overall debt. If the consumer takes a £30,000 advance, within 7-10 years that amount will have virtually doubled therefore the amount outstanding is £60,000. If at inception the property value is £200,00 and in ten years has grown in value to £268,783 which assumes a growth rate of 3% pa compound, the equity stake of the consumer at day 1 is £170,000 and at year 10 it would be £208,783. Although it has to be remembered that the effect that the interest has on the original capital is considerable, one should also remember the net effect that house price inflation in a positive way could have to mitigate an element of this cost.
That is not to guarantee high price inflation will always be positive however historically even including falls in 1974, 1990 and 2007-8 there is historically long term growth in the UK housing market and with the prospect of a growing population and strict green field planning laws still in place the potential for price growth still remains. All of these factors should be considered when contemplating an Equity Release Plan.
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