Defaqto: Equity release an option for retirement

Financial research company Defaqto has said that equity release mortgages can be seen as a possible solution to financing retirement, rather than a “last resort”.

In a report into the market, which is expected to grow from £1.4 billion this year to £2.4 billion in 2008, Defaqto said that house price inflation was the main factor behind its expansion.

It gives the example that a person buying an average house for £38,304 in 1986 with a 90 per cent mortgage would now own a property worth £172,979.

In this case the individual’s equity in that house would have increased from £3,830 to £138,505 – an increase of around 3,500 per cent.

David Black, head of banking at Defaqto, said: “It is an unfortunate fact of life that most people will have a significant shortfall between their retirement income and their expected spending needs if they wish to retain their current lifestyle.

“The chance to tap into the equity built up in their property represents a relatively easy way to produce an additional income stream or cash lump sum.”

Among the other aspects of modern life that make equity release attractive, according to the report, are increasing levels of life expectancy, low pension contributions, declining state pensions, higher taxes and lower interest rates on savings.

However, while equity release mortgages do have benefits, Defaqto points out that the market is complex and features complicated products, issuing advice to homeowners to seek expert advice before taking up such a mortgage.