Older home owners in UK embrace equity release in records numbers

Annual equity release lending in the UK reached its highest level in 15 years in 2017 after the final quarter of the year recorded unprecedented activity, the latest figures show.

The total amount of housing wealth unlocked by home owners aged over 55 reached £3.06 billion in 2017, the first time it has exceeded £3 billion in a single year, the figures from the Equity Release Council show.

Lending via equity release plans in the fourth quarter of 2017 amounted to over £838million, the highest level on record for any single quarter as UK home owners use their housing wealth to support their finances in later life. This contributed to overall annual lending growth of 42% when compared to £2.15 billion during 2016.

The final three months of 2017 also saw an unprecedented number of new equity release customers, exceeding 10,000 for the first time in a single quarter and a 4% increase from the previous quarter and up 24% compared to the final quarter of 2016.

These increases meant the total number of new equity release plans agreed in 2017 was up 34% on 2016 from 27,563 to 37,037, the highest total on record and the biggest percentage rise since 2003.

Overall, the sector supported almost 67,000 customers during 2017 with 25,794 existing drawdown lifetime mortgage customers returning to dip into agreed reserves, and 3,867 existing customers agreeing further advances on either lump sum, drawdown or home reversion plans.

Drawdown lifetime mortgages remain the most popular type of product, representing 75% of new plans agreed in the fourth quarter of 2017, up from 64% in the final quarter of 2016.
New drawdown customers agreed an average initial instalment of £62,359, a rise of 6% year on year but down by 4% on the previous quarter.

Some 25% new customers opted instead for a lump sum lifetime mortgage with an average loan amount of £101,913, up 2% compared to the third quarter of 2016 and up 8% year on year.

‘The record breaking demand for equity release over the past year is testament to the fact more consumers are changing the way they plan financially for retirement, and taking a broader range of options into consideration. This is illustrated by the continued popularity of drawdown products, with many customers viewing equity release as a reliable source of income in later life,’ said David Burrowes, chairman of the Equity Release Council.

‘Importantly, the evolving mindset of consumers is helped by the flexibility to use housing wealth for a range of purposes, and the rigorous safeguards and customer protections in place across the market. Consumers also have more choice than ever before, driven by the increasing number of providers that has, in turn, increased the range of product options and helped to push interest rates to new lows,’ he pointed out.

‘Property is, for many people, their largest asset and has the potential to play an ever greater role in the future to meet the challenge of ensuring effective later life funding. I look forward to working with our members and industry, regulators and government across 2018 to build on what has been a breakthrough year for the sector,’ he added.

According to Steve Wilkie, managing director of equity release specialist Responsible Equity Release, drawdown lifetime mortgages are providing a vital retirement income lifeline. ‘They are filling the savings void and also enabling pensioners to keep pension savings invested,’ he said.

‘Equity release providers have responded to the needs of the market, with a range of innovative products. This has not just opened up the equity release market to a wider customer base but also how the product is used,’ he explained.

He pointed out that equity release has moved away from being seen simply as a product to redo the family house, or fund a round the world holiday and is now providing a viable financial solution to pay off the mortgage, distribute an inheritance when it’s most needed or boost retirement income.

‘Changes in the way pensions are treated for tax-purposes has opened the floodgates for more people considering their home as part of their retirement planning. It’s taken a while for people to get their heads around exactly what pension freedom means, but it’s now starting to have a positive impact on the equity release market,’ he said.

‘The goal for many is to live comfortably in retirement; not to outlive their money and leave a substantial legacy to their loved ones. There has always been this mindset that you can’t count the house you live in as a potential source of retirement income, that the only savings you have are those in your bank and pension,’ he added.

‘It is starting to register that anyone who owns a home bought with a mortgage has been saving throughout their lives. The difference is the money hasn’t gone into a bank but into bricks and mortar. Once this change of thinking happens, we are likely to see more people act on it and tap into the accumulated wealth in their homes,’ he concluded.