There is a saying: desperate times call for desperate measures, and we’ve seen some rolled out in 2020 as not only the UK but Europe, USA and nearly everywhere have struggled to get COVID-19 under control.
The economic fallout from this pandemic has been widely felt too with households thinking twice about how they spend their income if they’re still getting one!
Homeowners who have equity in their home are considering how to ease their cash flow shortages and releasing equity in the home is one option.
There are lots of reasons people choose to release equity, and it can deliver a lot of benefits if used correctly.
A recent survey has revealed how equity funds are typically spent.
Here, we’ll look at how equity released funds are used in the UK according to the latest statistics.
Equity release requests rising due to coronavirus.
Due to the financial devastation caused by the recent pandemic, equity release requests have risen dramatically. In the first quarter of the year, before coronavirus took hold, older people had taken out a staggering £1.47 billion in equity release.
Interestingly, although demand has risen for equity release, this isn’t shown in the figures. In the second quarter of the year, there was a 27% fall in those using equity release. The value of plans is also said to have dropped from £1.32 billion to £767 million.
The reason the rise in demand isn’t showing in recent figures is thought to be down to service challenges caused by the lockdown. Therefore, it is expected third-quarter figures will reveal a more significant rise.
That being said, some homeowners have chosen not to take out equity.
The pandemic has caused a lot of uncertainty, which has caused many people to be more cautious. As they don’t know what is happening, they are holding off getting an equity release until they have a clearer picture of the effects of the virus.
How are the funds being spent?
According to the report, in the first quarter of the year, equity release funds were largely requested for home improvement purposes. However, in the second quarter, focus switched to repaying mortgages and gifting.
Although there was a boom in home renovations during the lockdown, the number of owners using equity release to pay for them reduced from 17% to 14%.
Speaking about how homeowners are using equity release, CEO of Key, Will Hale, states:
Q1 2020 was very different from Q2 2020, and it is only appropriate that those customers exploring equity release during the time of the pandemic have been focused on shoring up their finances by repaying debt and supporting wider families rather than looking to spend money on holidays or home and garden improvements.
Interestingly, the report also found homeowners in the north were more likely to release equity to free up funds.
While equity release can be a great way to free up a lump sum of money, there are downsides you need to be aware of. Approaching them with caution until the pandemic has eased, is a sensible idea.
Where there is a will, there is a way and our survival instinct gets us through tough times. COVID-19 will not break us, but it’s a test that is making all households reevaluate their priorities. Health always comes first so avoid panic and making rash decisions. Seek professional advice before taking out loans.
Work on relieving stress and the impact on health within your household. Money worries may be alleviated with equity release. There’s nothing to be gained through avoiding financial woes due to less cash flow. Seek advice and take action to protect you and your family.