Equity release choices for UK home owners triple in last decade

Equity release product options in the UK have tripled in the last decade and increased competition is driving down average rates which have fallen to a new low, the latest research shows.

In a decade of growth for the sector there are now 78 product options available, up from 24 in 2007, providing consumers with greater flexibility, according to the quarterly report from the Equity Release Council.

It points out that recent innovation means there are 51 more product options available now than in 2014, with an additional 20 coming onto the market in the last year alone, meanwhile increased competition continues to drive down average equity release rates, falling to a new low of 5.3%.

The report also show that there has been a jump in the proportion of customers aged 75 to 84 taking out new plans as older home owners increasingly unlock their housing wealth in retirement.

As Council member products, all 78 options adhere to the same safeguards and rigorous product standards, which the report says is a demonstration that product innovation has been accompanied by a continued commitment to customer protections.

This rapid expansion in product options comes as growth in the wider market has continued at pace. Total lending reached a record of almost £1.4 billion in the first half of 2017, up from £0.9 billion in the same period in 2016. If current trends continue, annual lending will reach £3 billion for the first time in 2017, whereas 10 years ago annual lending was just £1.2 billion.

As of August 2017 some 68% of product options allow customers to make ad-hoc repayments free from early repayment charges to help reduce interest accrued over the lifetime of the loan. Other increasingly common product features are drawdown, which allows housing wealth to be withdrawn in stages, and inheritance protection, which enables the ring fencing of a guaranteed minimum amount of housing wealth to leave to loved ones.

The report also shows that 45% of plans include downsizing protection which allows customers to downsize to a smaller property and repay the loan, either voluntarily or if the new property does not fit providers’ criteria, without incurring an ERC.

Another new product feature is improved interest payment flexibilities. One in 10 products now allows for full or partial interest payments to be made each month, which either stops or reduces interest being rolled up into the loan with no risk of the customer defaulting on their payments as they can switch to roll-up arrangements at any point.

Average equity release rates fell again between January and July 2017, as greater competition in the market continues to apply downward pressure on pricing. A fall of 15 basis points took the average rate down to 5.3%, from 5.45% and the council says this compares favourably with other personal borrowing products.

The average age of new equity release customers dropped marginally in the first half of 2017 across both drawdown plans from 71.7 to 71.5 and lump sum plans from 68.2 to 68. Both average ages remain broadly unchanged from the first figures recorded in the first half of 2014 when tracking began.

However, a further breakdown of customer ages indicates that an increasing number of home owners aged 75 to 84 are unlocking the wealth in their homes. Between the first half of 2016 and the first half of 2017 there was notable growth in the proportion of new drawdown plans being taken out by this age bracket, rising from 23.2% to 25.1%. This trend is also reflected among customers taking out new lump sum plans: those aged 75 to 84 made up 13.6% in the first six months of 2017 compared with 12.3% in the first six months of 2016.

‘The explosion in product options over the past decade is testament to the work done by the sector to meet increased consumer demand with solutions tailored to varying customer circumstances,’ said Nigel Waterson, chairman of the Equity Release Council.

‘Importantly, such innovation has gone hand in hand with a continued commitment to consumer protection through regulated financial advice, product safeguards and independent legal advice guaranteed by members of the Council,’ he explained.

He pointed out that such growth also comes at a time when the challenge of ensuring adequate financial provision for consumers in later life has never been greater. ‘The UK’s older population continues to grow and the reality of a shift from final salary to defined contribution (DC) pensions will likely result in future retirees facing a greater savings shortfall in later life. It is therefore clear that the role of housing wealth in funding retirement will only become more important in the future,’ he added.