The equity release market in the UK has moved closer to an unprecedented £1 billon of activity in a single quarter as homeowners aged 55 and over unlocked a record £971 million in the second quarter of 2018.
Those taking out equity release produced increased by 9% compared to the first quarter of the year and by 27% year on year with lump sums proving to be popular, accounting for 28% of new customers since the beginning of 2017.
The data from the Equity Release Council also shows that while the number of home owners accessing housing wealth has increased, new customers are being prudent, on average withdrawing smaller amounts than in the first quarter of 2018.
Total lending between April and June increased by 12% compared with the first quarter of 2018 and by 39% year on year and the quarterly increase was broadly in line with the average 11% growth seen from quarter to quarter since the beginning of 2016 as equity release has taken up a position as a mainstream financial solution in later life.
As a result, total lending in the first half of 2018 reached £1.84 billion overall, up by 32% from the first half of 2017. The total number of customers served increased by 28% over the same period from 16,805 to 38,912.
Some 62% new customers chose drawdown lifetime mortgages, allowing them access to equity from their homes in multiple instalments over time, which limits the interest owed while 38% chose a lump sum mortgage to receive a single pay out instead, the largest share since the first quarter of 2017.
The average amount of housing wealth unlocked by new customers fell slightly quarter on quarter across both drawdown and lump sum lifetime mortgages. The average first instalment of a drawdown plan decreased slightly from £64,797 to £63,584, while the average new lump sum plan dipped from £96,483 to £95,991.
According to David Burrowes, chairman of the Equity Release Council, property wealth has an important role to play as part of the solution to many pressing socio-economic issues, from boosting retirement incomes to funding social care and easing intergenerational pressures by helping people to pass on a ‘living inheritance’.
‘Consumers are releasing money from their homes for a variety of reasons, and features like downsizing protection and repayment options mean today’s equity release product range is designed to evolve as people age and circumstances change,’ he said.
‘Growing choice and flexibility has propelled equity release into the mainstream consciousness, and it is crucial that consumers are encouraged to weigh up all the choices available to them, to help create a rounded approach to later life planning that considers property alongside pensions and other assets,’ he added.
The figures show that home owners are proactively drawing from their property wealth alongside other assets as part of a holistic approach to retirement planning, according to Alice Watson, head of marketing at Retirement Advantage Equity Release.
‘This is another record quarter for equity release lending and offers further proof of the role property wealth is playing in shaping people’s retirement. These figures also reflect unprecedented levels of product innovation across the industry, driven by evolving customer demands,’ she added.
Dean Mirfin, chief product officer at Key Retirement, believes that the growth will continue with the market potentially reaching over £4 billion by the end of 2018. ‘Using property wealth is now a recognised later life funding solution and there’s a growing gifting trend, too. Around 28% of retired home owners used some or all of the money for gifts for families compared with 23% in the first six months of 2017,’ he explained.
‘Customers are enjoying low rate lending choices available in what is a very competitive market. Today’s lifetime fixed rates are on a par with or lower than many mainstream lenders’ variable rates,’ he said.
The rise in the market is substantial, with Steve Wilkie, managing director of Responsible Equity Release, pointing out that the industry lent less than £200 million in the second quarter of 2011 yet is now closing in on the £1 billion mark for the latest quarter.
He believes there are a number of reasons for the growth. ‘We are seeing more movement in lifetime mortgage rates due to increased competition from new lenders entering the market. These rapid fire price changes seem to be happening on a weekly basis and are attracting new audiences to equity release,’ he said.
‘Product innovations continue to benefit consumers, such as more options to repay plans early, and transparency over what charges are incurred when you do pay down early is building trust. We also see the biggest driver of new business as the number of items on our customers’ shopping lists. This is driven by equity release becoming a family affair; with more needs and wants to attend to,’ he explained.
He also pointed out that while historically, equity release has been driven by homes and holidays, home owners are also choosing to plan ahead and invest into their family’s futures. ‘They are looking at the gifting of an early inheritance at a time when it’s needed the most and where the whole family can reap the rewards later. Additionally, while pension funds are free to be passed on from generation to generation, property falls under IHT rules so it’s often more effective to look to the home to provide a retirement income,’ he added.
