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Demand for home equity release in UK reaches highest level for a decade

Consumer demand for releasing housing wealth and innovation has helped drive equity release in the UK to its highest level for over a decade, the latest figures show.

The sector recorded annual growth of £198 million in equity release lending between the first halves of 2015 and 2016, according to the autumn 2016 Equity Release Market Report from the Equity Release Council.

It says that demand is continuing to grow with lending in the second quarter of 2016 exceeding £500 million for the first time and setting a new record for the highest quarterly lending total.

It meant the first half of 2016 saw £908 million of lending from members of the council, some £198 million or 28% higher than the equivalent period of 2015. In value terms, this growth was the highest seen in the last decade, surpassing £160 million recorded in the first half of 2014.

The rise has come at a time when more providers and products have appeared on the market. Research by Moneyfacts in March showed the range of equity release products has grown by 34% year on year and more than doubled compared with three years ago.

Increasing competition has also had a positive impact on product pricing, the report points out. While continuing to offer additional guarantees and protections, average lifetime mortgage rates fell further (24 basis points) than any other category of mortgage products during the first half of the year, reaching 5.96% in July with an increasing number of sub 5% rates available.

The Council’s analysis shows that since 2007, equity release lending activity in the second half of each year has been 13% higher on average than the first half of the year. This has increased to 20% over the last five years and reached 26% in 2015.

Looking ahead, growth of 13% from the first to second halves of this year would result in annual lending reaching £1.93 billion for 2016. A 20% rise would see annual lending reach £2 billion, while 26% growth would result in 2016 lending of £2.05 billion.

Drawdown lifetime mortgages remained the most popular product choice in the first half of 2016, with 67% of new plans falling into this category. This continues the trend seen over the last five years where at least 65% of new plans agreed during every half year period since the first half of 2011 have been drawdown. A total of 7,917 drawdown plans were agreed, the largest number in any first half period on record.

For the second successive half year period, market data indicates over 50% of new plans allowed customers to make voluntary repayments up to a certain value, typically 10% per annum, without an early repayment charge. This option helps customers limit the total amount owed over the lifetime of the loan, as does the option with some products to make regular interest payments without risking default and repossession because customers can revert to roll-up interest at any point.

Another emerging feature being offered by some providers is downsizing protection. This typically allows the loan to be repaid in full without the requirement to pay an early repayment charge if this is done in conjunction with moving to another property, providing the loan has been running for at least five years.

Average customer’s age hovers below 70 as they find greater equity at their disposal
The average age of equity release customers in the first half of 2016 was 70 with the age bracket from 65 to 74 remaining the most common for taking out a new plan.

Year on year the percentage of new customers aged 55 to 64 increased from 17.5% to 21.2%. The report says that this may be a sign that people are starting to look at housing wealth as a potential asset earlier in the retirement planning process, and that more find themselves with existing borrowing, including interest only mortgages, to pay off as they move into later life. However, customers in the younger age bracket continue to be outnumbered by those aged 75 plus.

The average value of equity release customers’ homes has risen broadly in line with UK house prices over the last year, up by 8.1% from £283,806 to £306,854. Despite rising house prices giving them more equity at their disposal, The Council’s analysis suggests the average customer continues to draw on a modest percentage of their equity.

‘Growth is being driven by a combination of rising consumer demand and continuing signs of innovation and change in the market. In terms of demand, savings shortfalls and other financial challenges leave many over 55s looking for an extra source of income in later life, while housing wealth also offers a vehicle for intergenerational transfer of wealth and inheritance planning,’ said Nigel Waterson, chairman of the Equity Release Council.

‘The industry response so far this year has already seen new providers, partnerships and new potential emerge, with closer relationships being built with related areas of financial services including residential mortgages and later life financial planning. Established and new providers are making strides to compete on interest rates, expand the product range and introduce new flexibilities alongside the Standards and guarantees that have established a safe and reliable market for consumers over the last 25 years,’ he explained.

‘The Council will continue to work with regulators, government and industry partners to ensure that consumers can access a high quality of expert advice and products to support their financial wellbeing. Equity release has an important role to play as part of the broader drive to support the UK’s ageing population,’ he added.

According to Alice Watson, head of marketing at Retirement Advantage Equity Release, the figures reinforce the popularity of the equity release industry. She believes that it would take something dramatic for the industry to fall short of that milestone £2 billion milestone.

‘For ever more over 55s equity release just makes sense. Property prices remain high, savings accounts continue to return precious little, and when you combine this with the holistic approach to retirement planning that is rapidly becoming the norm, unlocking some of the value held in property is a viable and credible solution,’ she said.

‘The industry can’t rest on its laurels, though. We’ve come this far through product innovation, driven by a desire to make equity release as useful for the end customer as possible, and that has to be the mantra for the months and years ahead. New entrants to the market also boost competition, which also spurs greater product innovation,’ she added.