Equity release adviser Key has reported that third quarter take-up of drawdown plans grew strongly as the equity release market recorded its best quarter this year for volume and value of new business.
Key’s Equity Release Market Monitor showed that 11,772 plans worth £886.59 million were taken out in Q3 2019 with an additional £368.58 million reserved for future use as current economic and political turmoil encouraged customers to be cautious. The volume of plans taken out is 8% up quarter on quarter (+836 from 10,936) but 3% down year on year (-361 from 12,133).
Drawdown products (both enhanced and standard) now account for 75% of all equity release plans sold (62% – Q3 2018) and there was a decrease in the average initial amount released from £60,922 (Q3 2018) to £58,729 (Q3 2019).
Key said this seems to suggest that consumers see “real benefit” from the flexibility offered by these products as they remain cautious and keen to manage their borrowing carefully in light of current economic uncertainty.
The increasing popularity of these drawdown products also resulted in the overall average amount released fall from £76,967 (Q3 2018) to £75,300 (Q3 2019) on an average loan to the value of 24%. Lump sum lifetime mortgages made up 25% of sales, including 9% of enhanced plans.
Key said the over-55s’ desire to manage their borrowing carefully was also evident in the increase in the number of people who are choosing to ‘remortgage’ their equity release plan to release more funds or save money – 3% (Q3 2018) to 5% (Q3 2019).
With over 310 products on the market and the sector enjoying a period of historic low interest rates (from 2.63% MER), this is a trend that is likely to increase provided advisers are able to find the right deal for their customers – some of whom are on variable early repayment charges, Key said.
While up to half of people use equity release to shore up their finances – clearing mortgages (19%) and repaying unsecured debt (29%) – the largest proportion of customers used their equity to improve their homes or gardens (67%) as they look to age proof their homes in later life. In addition, 34% funded holidays and 27% were able to help family.
Will Hale (pictured), CEO at Key, said: “While the market is not seeing the double-digit growth of recent years, it continues to prosper and Q3 2019 has been the strongest quarter this year with people releasing over £887 million and reserving a further £369 million. The growth in popularity of drawdown, the smaller amounts released and the increasing numbers of customers looking to remortgage, all points to borrowers who see the value of using their housing equity but want to do this as cautiously and responsibly as possible.
“Historically low rates and the wide range of products with innovative features mean that those who do want to help themselves or their families by accessing the value tied up in their home have a range of options. However, it also means that specialist later life advice is vital as making the wrong choice around whether to borrow, how much to borrow and how to borrow can have long term consequences.”
Key’s Market Monitor, which analyses data reflecting both Equity Release Council members and non-members, found the biggest increase in value released was in Wales at 21% followed by the West Midlands at 12%. Yorkshire & The Humber and London also saw increases. The biggest drops in value released were in East Anglia and the South West.
Wales also recorded the largest increase in plan sales at 18% followed by Yorkshire & The Humber on 14% and the West Midlands on 11% while London also saw gains. The biggest fall in plan sales was in the North East.
Dave Harris, CEO at equity release lender More 2 Life, added: “Today’s figures which highlight the growing popularity of drawdown products is excellent news for not only consumers but the wider equity release industry. These plans are ideally suited to help people manage their finances in later life – especially those who find that they see regular shortfalls in income or would struggle to meet an unexpected bill. And from an industry perspective, it shows that by listening carefully to our customers and producing innovative flexible products, we can ensure that there are fewer barriers to people using their housing equity to improve their standard of living.
“Underfunded pension pots and longer retirements mean that growing numbers of people find themselves cash-poor but equity rich as they age. Later Life lending products are ideally suited to help make up any shortfall in income during retirement. As innovation and the advice capacity in the market increases, we will be in a position to help more retirees will enjoy better retirement outcomes.”