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Product choice in equity release market increases

Equity release customers in the UK saw unprecedented levels of product choice and flexibility in the first six months of 2019 as a total of £1.85 billion in housing wealth was unlocked in the first half of the year, according to the latest industry report.

In a sign that the industry continues to respond to consumer demand for more flexibility and choice, the range of product options increased two fold compared to this time last year to almost 300 options, the data from the Equity Release Council’s autumn trends report shows.

Energised by strong competition in the market and consumer demand, there has been continued growth across all product features, underpinned by Equity Release Council standards guaranteeing three levels of protection including product safeguards, regulated financial advice and independent legal advice.

The top growth areas over the last year include options for sheltered or age-restricted accommodation, interest serviced (regular interest payments) options, downsizing protection, inheritance guarantees and drawdown facilities.

Product options offering the ability to make regular interest payments increased to 81 in August 2019, up 80% since the start of the year and almost quadrupling year on year. This feature helps reduce the build-up of interest in the long run. Unlike other retirement mortgage products, customers can pay interest in part or in full without the risk of repossession if payments are no longer affordable, with the option of switching to roll-up at any point.

There has also been a notable annual rise in product options available on sheltered and/or age restricted accommodation, up 269%, while the range of options offering downsizing protection have doubled. This feature allows customers to downsize and repay their loan without incurring an early repayment charge, a key consideration in later life.

Products offering inheritance guarantees have seen an 88% year on year increase. This gives customers the option to ring fence part of their property’s value to leave behind as a guaranteed minimum inheritance.

But the report also shows the average equity release rate at a record low of 4.91%. Some 58% of products offer a rate of 5% or less, while 21% of products are priced at 4% or below with these rates being fixed or capped at a maximum limit for the entire life of the loan.

This growing product range with increasingly competitive rates comes at a time there are an estimated 20.5 million people aged 55 plus in the UK, including 1.6 million aged 85 or more, with those who own their home outright aged 67.7 on average.

The report explains that this is approaching the typical age that customers take out equity release, averaging 70.3 years for new drawdown plans and 68 for new lump sum plans. This comes as 51% of home owners aged 45 and over see money invested in property as part of their financial plans for later life.

‘The equity release market is responding to consumer demand as it continues to evolve and grow. Increased product innovation and flexibilities are helping to meet wide range of financial and social needs, from providing extra retirement income to passing on wealth to younger generations,’ said David Burrowes, chairman of the Equity Release Council.

‘Older home owners considering equity release have never before had more choice and flexibility to meet their changing needs and their families’, with average rates also at record lows. A broader range of products means equity release can play an important part of advisers’ toolkit when considering clients’ requirements in later life,’ he explained.

‘It’s vital that advisers across a host of areas, including pensions and wealth management, can identify when equity release may or may not be suitable based on today’s product range and can refer a client for specialist advice where appropriate,’ he pointed out.

‘The market’s development has been driven by competition, reinforced by robust consumer protections and product safeguards. As the UK’s ageing population continues to grow, making use of housing wealth will be essential to help all generations meet the financial challenges they’re facing both today and tomorrow,’ he concluded.