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Older homeowners have cashed in on long-term house price growth and withdrawn more than £1.8bn from their properties in the first half of the year.
Equity release schemes have rocketed in popularity in recent years as older people look to use their homes as cash machines and unlock the wealth that has been generated by decades of price increases.
Average interest rates for new deals have fallen below 5pc for the first time, according to the Equity Release Council, the industry pressure group. This has caused a 6pc surge in the number of plans taken out, compared to the first half of 2018.
Much of this cash is used to fund home improvements, pass on money to grandchildren or to pay for cruises or holidays abroad.
Lower interest rates will tempt more homeowners into taking out equity release loans but, as Telegraph Money has previously reported, the compounded interest charges can leave homeowners with a nasty surprise later down the line.
Analysis by Andy Wilson Financial Services, a broker, showed that a typical homeowner taking out a £100,000 loan at 4.91pc, the industry average, would see the value of their property being whittled away after around 22 years, subject to 1pc house price annual growth.
With lenders advertising equity release loans to people as young as 55, this can leave older homeowners with little or nothing to pass onto their heirs.
However, rates are getting cheaper. Responsible Lending, an equity release provider, launched a 2.82pc fixed-rate loan earlier this month. This is the cheapest equity release loan on the market.
The Equity Release Council said that all new deals come with a guarantee that the customer will never owe more than the value of their property.
Some providers have also launched loans where the borrower is able to make regular interest payments and slow the rate at which the value of their home disappears, or where some of the property’s value is ring fenced so that loved ones can receive an inheritance of some kind.
However, customers are advised to read the small print before signing up for equity release. As this newspaper has previously revealed, many plans have hefty exit penalties for homeowners who later wish to move.
Andy Wilson, of Andy Wilson Financial Services, said: "The lowest interest rate in the market has just fallen to an all-time low of 2.82pc. These sorts of rates were almost impossible to imagine even a few years ago."
- Reader Service: Try our free equity release calculator and learn how much tax-free cash you could release from your property
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