The latest Market Monitor from Key has found that while homeowners aged 55+ released £1.47 billion worth of property wealth in the first half of 2020, this was driven by a buoyant Q1 as the impact of the coronavirus and resulting political and economic uncertainty hit the market in Q2.
Between Q1 2020 (11,495) and Q2 2020 (8,374), the market saw a 27% fall in the number of customers using equity release and a 45% fall in the amount of new equity released (£949m to £521m). The total value of plans including reserved drawdown fell from £1.32 billion (Q1 2020) to £767m (Q2 2020) over the same period.
Key said that while some of this may be due to customers being more cautious, demand has remained strong so the servicing challenges faced by the industry due to lockdown are likely to have had some impact which suggests there may be a bounce back in Q3.
Low volumes in Q2 impacted on H1 figures with the number of plans taken out falling 10% to 19,870 from the same time last year (H1 2019 – 22,216) while total property wealth value released fell 12.6% to £1.47 billion from £1.68 billion.
The total market including unused drawdown facilities was worth £2.04 billion in the six months compared with £2.38 billion with the value of reserved drawdown falling to £624m from £706m. In the first quarter the value of reserved drawdown was higher than last year at £390m compared with £340m.
The average loan amount fell slightly in H1 2020 to £74,014 (H1 2019 – £76,064) while the average property value increased slightly to £321,209 (H1 2019 – £318,571). Average customer ages also remained relatively static at 70-years old (H1 2019 – 71 years old).
Will Hale (pictured), CEO at Key, said: “The unprecedented circumstances the UK and the world finds itself in due to the coronavirus has been reflected in the significant slowdown in the equity release market in the second quarter. Whilst the sector has been remarkably resilient in adjusting working practices in the face of lockdown to ensure we can continue to help customers, there are a number of knock on effects from the current pandemic.
“Indeed, not only are cases taking longer to complete but it is only appropriate that people are delaying their decision to access their housing equity due to the current uncertainty. At Key, we have certainly been having these types of conversations with customers and really focused on helping people decide whether they have an immediate need or perhaps can wait until society returns to a situation when booking a holiday or age-proofing their home is possible.
“That said, demand has remained strong as more customers look to explore how housing equity could help support them in later life and, as we move to more normal trading conditions, we are confident that these macro drivers will ensure that we will return to growth by year end and into 2021.”
In H1 2020, while 59% of people spent some of the equity they released on home or garden renovations only 16% of the proceeds were spent on this reason. Instead, repaying mortgages (24%) and gifting (21%) were more common.
Given the unusual situation the economy finds itself in, Key also looked at how spending patterns in Q1 2020 differed from those in Q2 2020. This suggested that customers were focused on making their finances more secure (+6% spent on mortgage repayment) rather than discretionary spending (-4% spent on holidays).
Hale added: “Q1 2020 was very different from Q2 2020 and it is only appropriate that those customers exploring equity release during the time of the pandemic have been focused on shoring up their finances by repaying debt and supporting their wider families rather than looking to spend money on holidays or home and garden improvements. Even with the changes that the Chancellor recently announced, many older consumers are likely to be extremely cautious about their choices around their spending for the foreseeable future – although we may see an increase in gifting to family members looking to get on, or move up, the housing ladder given the stamp duty holiday.
“At Key, at the onset of the crisis we were proactive in amending both our advice philosophy and our approach to identification of vulnerability. Our focus has been on supporting customers who have specific needs rather than unmet desires. With people unable to go on holiday or spend money on age proofing their home, the responsible approach has been to advise them to wait until the market returns to more normal trading conditions and they could make sustainable long-term decisions.”
Stuart Wilson, CEO at Air Group, added: “No sector was going to be unaffected by Covid-19 and the impact of lockdown, and equity release is no different. However, despite the anticipated fall in customer numbers and released equity in Q2, we’ve already seen something of a bounce back and it’s clear that later life options are going to be more in demand going forward, especially when you consider that more older customers are utilising products to pay down mortgages and debt much more frequently. Plus it should not be forgotten that there are so many more options available to older homeowners now in the later life space including those where they can pay the interest each month so the debt is not rolled up, and they can also drawdown as and when they need it.
“What this does perhaps show more than ever is the importance of customers taking professional advice, and weighing up what might be the short-term financial consequences of the pandemic, with longer-term needs and the decisions that they may have to make. This is even more important when financial pressures are being felt, when family members might also be feeling the pinch, and where there is a greater chance of individual vulnerability. We need to spread the message far and wide about how older homeowners access advice and the benefits of doing so.”