Lending via drawdown products totalled £271 million between October and December 2015, the largest quarterly total since this type of lifetime mortgage first emerged in 2004, the data from the Equity Release Council sows.
Some 70% new plans agreed in the fourth quarter of 2015 were drawdown, up from 63% in the previous quarter as more people opted to withdraw their housing wealth in stages to boost their retirement income as and when they need it.
Drawdown lending for the whole of 2015 was also the highest on record at £961 million. It pushed total equity release lending activity by members of The Council to an unprecedented £1.61 billion, up 16% from £1.38 billion in 2014. Last year saw more than 22,500 new plans agreed for the first time since 2008.
At 22%, the year on year lending growth rate in the final quarter of 2015 was the largest of any quarter last year, despite a slight dip in quarterly lending from £453 million in the third quarter to £445 million.
Since falling to a post-recession low of £789 million in 2011, annual equity release lending has more than doubled in the last four years and now exceeds its pre-recession peak of £1.21 billion. Over the whole of 2015, drawdown lifetime mortgages accounted for 66% of new plans agreed, while lump sum lifetime mortgages made up 34% and home reversions were below 1%.
‘These year-end figures are the latest sign of growing reliance on housing wealth as a key pillar of later life financial planning. The rising popularity of drawdown has been one of the success stories of the last decade, and product features have since appeared allowing customers to protect a percentage of their equity as an inheritance, make part-repayments of capital or make interest repayments on their loan,’ said Nigel Waterson, chairman of the Equity Release Council.
‘Looking ahead, the challenge is to continue developing products which meet consumer needs while ensuring that innovation is combined with protection and long- term sustainability. The work led by The Council and its members to uphold standards for equity release products and advice has been fundamental to creating a safe market for consumers, and we will continue these efforts to meet growing customer demand alongside regulators and the Government,’ he explained.
‘Housing wealth is often people’s greatest asset and it makes sense for equity release to be on every homeowner’s checklist to consider as part of their retirement and estate planning. At the same time, it is not suitable for every circumstance, which is why professional financial advice and independent legal advice are essential so that customers understand how the products work, and what they can offer. Supporting advisers as the market grows will be a top priority in the year ahead,’ he added.
The increase in people using drawdown lifetime mortgages is positive, according to Alex Edmans, head of retirement at Saga. ‘People seem to be growing more confident in this sector as they recognise that they can use the money tied up in their home to help them financially plan for later life,’ he said.
‘These latest figures suggest that people like being able to unlock cash from their home as and when they need it. This can be a smart move financially as people only have to pay interest on the funds they release, but they know that they can unlock more cash at a later date if they need to,’ he pointed out.
‘However, equity release is not right for everyone. We always recommend getting thorough advice before taking out a plan, as well as speaking to family and friends so they know what you are thinking of doing,’ he added.
The figures suggest that since April’s introduction of Pension Freedoms, people are taking a more holistic look at later life planning and including housing wealth in their decisions, according to Helen Davies, head of operations at the ER Partnership.
‘This is excellent news as it is extremely frustrating to hear stories of older people who are struggling financially as they are unaware of their options or worried by misinformation. Equity release is not right for everyone but taking into account what is often your largest asset when you are planning income sources for retirement only seems prudent,’ she said.
