Boom in older people using their home as a cash machine

Using the family home as a cash machines to fund a middle-class retirement is becoming a "new normal" among older homeowners, experts say. 

The value of so-called "equity release" lending reached £824 million in the past three months after rising by 44 per cent on the same period last year, according to the latest industry figures. 

And yesterday Britain's biggest mortgage lender Nationwide announced it would become the first major mortgage lender to offer equity release since the financial crisis, when banks stopped offering it.

In recent years such policies have only been sold by specialist providers.  

Equity release, or "lifetime mortgages" let homeowners extract value from their homes by borrowing against some or all of the equity in their home. Such loans are attractive because they are typically repaid only when the customer dies and the property is sold.

However, the interest is compounded each year so the debt typically doubles over the course of a decade, meaning it can be an expensive burden on the deceased's estate.

Experts said that while the rise of equity release could reduce the amount of traditional inheritance bequeathed to younger generations, it could facilitate a rise in "living inheritances" where relatives gift money while still alive.

According to Nationwide one in ten people looking to to take out a lifetime mortgage wanted to the money to gift to family or friends. However the most common reason was to pay off an existing mortgage, suggesting that the boom is being fuelled by retirees wanting to increase their disposable income.

Ray Bougler, a technical expert at John Charcoal, said: "Lifetime mortgages are increasingly becoming the new normal, and with Nationwide now in the market they are well and truly in the mainstream. 

"It presents a great opportunity for parents and grandparents to extract equity from their own home to give their relatives a deposit on their first home. The Nationwide policy has an option to repay 10 per cent of the loan every year so it is actually a very cheap way to borrow money over the long term." 

However last year the head of the Financial Conduct Authority warned that property was not the best way to save for retirement, urging savers to focus on their pension instead.  The City watchdog's boss, Andrew Bailey raised caution over using property to fund a pension by taking out an equity release mortgage, many of which come with complicated - and sometimes expensive - guarantees, he said. 

Nigel Waterson, Chairman of the Equity Release Council, said: “The fact that record numbers are choosing to do so is a sign that, in the post-pension freedoms landscape, releasing housing equity is an increasingly logical consideration for many homeowners – both to increase their own financial options and provide a living inheritance for younger generations.”