Equity release becoming more mainstream for home owners in UK
A record breaking year for equity release in the UK in 2016 saw lifetime mortgages become the fastest growing product in terms of customer numbers, according to the data.
The volume of lifetime mortgage customers grew by 22% in 2016 with a total of 27,534 new plans agreed, the figures from the spring 2017 equity release market report from the Equity Release Council shows.
Meanwhile buy to let remortgaging, the second fastest growing mortgage segment, saw an increase of 16%, having recorded the biggest annual growth rate in the previous three years.
Other segments of the mortgage market had a mixed year in 2016. While remortgaging numbers grew 14% and first time buyer numbers by 8%, the volume of home mover mortgages fell by 2% while buy to let purchase mortgages fell 13% from 2015.
Equity release remains a small segment of the overall market, yet the second half of 2016 saw a record £1.24 billion of housing wealth unlocked with total lending for the year reaching an unprecedented £2.15 billion. The growth rate of lending between 2015 and 2016 was 34%, more than double the 16% seen from 2014 to 2015.
The council explained that recent years have seen the equity release market become increasingly competitive, as new providers enter the market looking to serve increased demand among older homeowners to access their housing wealth.
This has resulted in a significant fall in average equity release rates of 51 basis points (bps) between July 2016 and January 2017 to 5.45%, with many providers offering rates below 5%.
At the same time, the number of products available to customers has continued to rise along with the flexibilities these offer, including downsizing protection, capped variable interest rates, and options to make monthly interest payments or annual capital repayments without incurring a charge.
Drawdown mortgage products continued to be the most popular type of equity release plan in 2016, with 65% of new customers opting for drawdown compared to 35% opting for lump sum mortgages. A small number took out home reversion plans. However, over the course of the year the proportion of lump sum customers increased slightly, from 33% in the first half H1 to 37% in the second half.
The average age of equity release customers increased slightly in the second half of 2016, rising from 69.9 to 70.1 years old. The most popular age bracket to take out equity release products remains between 65 and 74, accounting for 54.5% of all customers in the second half of the year, which is typically the first decade of retirement. However, this is below the 57.9% recorded in the first half.
The market report also shows that the proportion of older equity release customers is rising, with those aged 75 to 84 up from 19.4% to 20.2%, while the proportion aged 85 and above increased from 3% to 4.1%. The proportion of customers aged 55 to 64 remained relatively stable, rising from 21.2% to 21.3%.
‘2016 was a hugely significant year for the equity release sector. The value of lending has nearly tripled in the five years from 2011 to surpass the £2 billion mark and we also celebrated the 25th anniversary of the industry standards which have been fundamental to establishing a safe and reliable market for consumers,’ said Nigel Waterson, chairman of the Equity Release Council.
‘The sector is becoming increasingly mainstream amid growing appetite from older homeowners, reflected by the fact that lifetime products were the fastest growing segment of the mortgage market last year. Older home owners are increasingly realising that there are a number of potential uses for their housing wealth beyond supplementing their retirement income, including re-investing in their homes and helping younger family members by providing a living inheritance,’ he pointed out.
‘Greater flexibilities and growing competition mean the equity release product range continues to evolve, and the council and its growing membership remain steadfastly committed to ensuring best practice in advice and product delivery to ensure good outcomes for consumers,’ he added.