The in-depth report from the Equity Release Council shows the average initial amount of housing wealth unlocked by equity release customers via drawdown mortgages in the last six months of 2015 was £49,607.
It points out that continued house price growth across much of the UK means many homes can 'earn' more than the average salary. This increases the appeal for home owners over the age of 55, who may no longer be working themselves, to improve their finances in later life by unlocking wealth tied up in their home, while retaining the right to tenure.
The most common age to draw money through equity release is 65 to 74 but there has been particular growth in the 55 to 64 age group and those aged 85 and over. Over half of 55 to 64s opt for lump sum lifetime mortgages, while from 75 onwards four in five plans are drawdown mortgages
Every region in England saw drawdown mortgage customers take an initial advance worth more than a year's take home pay for the average full time worker in that region. In London, drawdown customers withdraw the equivalent of 130 weeks' pay at £72,858.
For lump sum customers in all UK regions except Scotland, where 91 weeks' worth of pay is released, the average withdrawal of housing wealth was equal to more than two year's take home pay. London again had the greatest sums taken out at £209,739 or 373 weeks' income.
The five years from 2011 to 2015 have all seen a surge in equity release activity during the second half of the year. Indeed, the second half of 2015 saw a 26% rise in the value of lending compared with the first half, from £710 million to £898 million, the biggest half year growth rate of the post-2008 era.
The Council's analysis of data for the second half of 2015 also shows product choice differs by age group, however. Between 65 and 74 product preferences closely match the overall market and 68.2% of plans taken out by this age group are drawdown and 31.8% are lump sum. The UK average is split 66.6% drawdown to 32.8% lump sum, and home reversion made up the remainder.
Customers aged 55to 64 bucked the overall trend with the majority, 54.5%, choosing lump sum products. In contrast, from age 75 onwards four out of five opt for drawdown plans, taking an initial sum in later life while preserving an additional sum to withdraw as the need arises.
‘Equity release products continue to prove versatile in helping customers meet a range of financial needs before, at and during retirement. As a result, there is growing recognition from UK consumers, regulators and politicians that housing wealth can, and should, play a greater role in financial planning for retirement,’ said Nigel Waterson, chairman of the Equity Release Council,.
‘Greater choice from new and existing providers is driving the appeal of equity release, with product features emerging that allow more freedom to make capital repayments and pay interest on some loans. We expect this trend to continue, and the challenge for industry and regulators is to ensure product innovation is combined with consumer protection and long term sustainability,’ he explained.
‘Building closer relationships with the mortgage and later life markets is also crucial so that, where appropriate, more consumers can access specialist financial and legal advice to make an informed choice about equity release,’ he added.
According to Alice Watson, product and communications manager at Retirement Advantage Equity Release, said that there can surely be no doubt now that equity release is firmly embedded as a mainstream source of finance for people in or approaching retirement.
‘Its record breaking growth across the UK is a sure sign that more over 55s than ever before recognise the significant role property wealth can play as part of a holistic approach to retirement planning. As equity release grows it is only natural that the way customers want to access the products, and their reasons for doing so, also evolve,’ she pointed out.
‘The industry is responding in kind, with ever more innovative products which suit the needs of customers but never lose sight of the need to protect their interests. The fact that people approaching retirement and those further into retirement are turning to equity release illustrates the continuing maturity of the market,’ she explained.
‘The needs of people aged 55 and 85 will be completely different, so a one size fits all approach simply won’t work. We’re working closely with advisers to help them introduce the concept of equity release as part of a broader, holistic view of retirement finances. The equity release industry is ending its first 25 years in rude health. The second 25 look even more exciting,’ she added.
