Equity release firms expect a rates boost

Published on Tuesday 6 January 2009 20:17

LOWER interest rates look set to boost the equity release market as pensioners increasingly turn to their home to fund their retirement, new research suggests.

Nine out of ten equity release providers expect the volume of new business to increase during the coming year, according to trade body Safe Home Income Plans (Ship).

The market is expected to grow by 200 million during the year to be worth 1.4 billion at the end of 2009, rising to 1.7bn in 2010.

More than two thirds of Ship's members, who represent more than 90 per cent of the sector, expect interest rate reductions on equity release plans to be a key driver of this growth.

Falls in the returns paid on savings accounts are also likely to have an impact, as retired people are no longer able to use the interest paid on their deposits to boost their retirement income.

But continuing house price falls, as well as a lack of understanding about how equity release works, are likely to remain big challenges facing the market.

Equity release enables homeowners to unlock money from their property by taking out a lifetime mortgage which is not repaid until they die, or by selling a proportion to a home reversion company.