The Spring 2015 edition of the Equity Release Market Report from the Equity Release Council shows that as the market has grown, the proportion of new equity release customers aged 55 to 64 dropped from 24% in 2011 to 21% in 2013, pushing up the average customer's age towards 71.
This trend continued in the second half of 2014 when just 17% of new customers fell into the 55 to 64 age bracket. However, following the March 2014 Budget and MMR implementation on 26 April, this age group made up 20% of new equity release customers during the second half of the year.
Compared with the first half of 2014, the number of new equity release customers aged 55 to 64 was 32% higher in the second half of the year, which was also the busiest half year since 2008 for total new plans agreed.
The average age of customers choosing drawdown products was unchanged at 71.6 from the first half of the year to the second half but the average age of those choosing lump sums fell from 68.8 in the first six months of 2014 to 67.6 in the second.
The data suggests that changes in the residential mortgage and pensions markets are having an impact on the profile of equity release customers. Reports have surfaced that people are finding it increasingly difficult to access residential mortgage finance later in life under the MMR rules, particularly if the desired term may stretch beyond their normal retirement age.
At the same time, many borrowers with interest mortgages are approaching their final repayment date. For those who have no or limited resources for a repayment vehicle, using equity release to pay off their existing mortgage is a common solution.
Some younger borrowers may also have used equity release in the second half of last year to meet an immediate need for extra funds, rather than accessing their pension savings ahead of 6th April 2015 when the new pension flexibilities will take effect.
‘Equity release is helping people respond to a host of financial challenges at various points in later life, or simply enhance their standard of living so they can enjoy a more comfortable retirement. Part of the appeal lies in the option to cover off large one off expenses,’ said Nigel Waterson, chairman of the Equity Release Council.
‘Paying off the last of an existing mortgage is often one of the biggest financial deadlines people have to face beyond the age of 55. The flexibility of equity release enables them to wipe the slate clean while also using their housing wealth to meet a range of other needs,’ he explained.
‘The money they have put into property often proves a good investment over time. Releasing equity gives people a chance to use these funds in later life to enrich their lifestyle. Product choices are limited for older customers in the residential mortgage market, however new lenders are coming into the market to boost equity release activity and bringing more choice and flexibilities for consumers,’ he added.
The Spring 2015 market report also shows drawdown lifetime mortgages remain the most popular product type among equity release customers. Some 66% of new customers chose a drawdown product last year, while 34% opted for lump sums and less than 1% took out home reversion plans.
Drawdown customers typically have more valuable homes but withdrew less than a sixth of their total housing wealth as a first instalment during 2014 at £46,356. This sum is still 85% larger than the average single defined contribution pension pot of £25,000. Lump sum customers released an average of £69,118, some 176% larger the average defined contribution pension pot.
The comparison shows the significant contribution housing wealth can make as an extra source of funding in later life, to complement or compensate for people's pension pots. ‘The pension freedoms will encourage careful consideration about how people can best fund their lifestyle beyond the age of 55. Whether or not they choose to withdraw a lump sum from their pension at any stage, homeowners can take great comfort from the significant wealth in their homes which often far exceeds the average single defined pension pot,’ Waterson pointed out.
‘It is vital for people to consider all the options available to them in retirement, and make an informed decision about how best to use the various products at their disposal. Not everyone needs a lifetime mortgage, but it should always be on the checklist for consideration,’ he added.
