The UK equity release market is entering a crucial stage in its development and will play a greater role in retirement planning, according to a new report from Defaqto.

However, the leading financial research company believes that consumer choice and confidence in equity release products is still limited by a lack of household names entering the market.

In the report entitled “Equity Release in the UK 2007 – Lifetime Mortgages and Home Reversions: A Retirement Solution”, Defaqto states that a combination of under-funded pensions, low annuity rates, demographic issues and pensioner debt, along with historically high levels of equity in the housing stock make equity release an important alternative for retirement planning.

The growing demand for equity release products will increasingly be driven by debt consolidation, reports Defaqto. It warns that the current trend for interest-only mortgages without any apparent capital repayment will exacerbate future retirement debt issues.

Other factors driving demand for equity release include:

Lifestyle – funding lifestyle aspirations such as a new car or holidays

Income – securing an adequate income in retirement is a growing problem

Home improvements – many low income pensioners require funds for essential repairs and improvements

Inheritance tax planning – to reduce the value of estates which are rising rapidly due to house price inflation

Gifting – to provide a deposit for a house purchase or to pay for school fees

Defaqto states that equity release products are complex and the report emphasises the need for homeowners to consider all alternatives and to seek expert advice and to consult their families if they decide to use an equity release product.

David Black, Defaqto’s Head of Banking and author of the report, said: “A number of factors are coming together which will make equity release an increasingly sought-after retirement solution for many people. In particular, growing levels of pensioner debt combined with underfunded pensions and low annuity rates mean that equity release provides a genuine way forward for those struggling in retirement.

“Although it remains essential that people explore alternatives to equity release as well as its possible implications; equity release will become an increasingly relevant option in future retirement planning. It clearly won’t suit everyone but it will increasingly provide a solution for many people.

Defaqto states that the equity release market has come under intense media scrutiny since the 1980s despite the significant subsequent changes in the market. To consider equity release only “as a last resort” displays a lack of comprehension of the underlying issues, says Defaqto. However, it is not a product that suits everyone and potential customers should also explore alternatives.

Equity release is a retirement solution that will suit some people and it will play an increasingly important role in retirement planning going forward.