The number of equity release product options available has more than doubled in two years, the Equity Release Council has revealed.
As of August 2018, 139 product options were available to consumers, more than double the number (58) seen two years ago, according to the Council’s Autumn 2018 Equity Release Market Report. By contrast, just 24 product options existed in 2007.
The report stated that the growing base of equity release customers in recent years – up by 81% from H1 2016 to H1 2018 – has been met with an increase in product choices, helping to meet homeowners’ increasingly complex needs in later life.
Property wealth is emerging as a mainstream retirement funding choice and current equity release products also offer greater flexibilities to help customers manage their finances in later life and limit costs. 80% of product options offer consumers the choice to make ad-hoc, penalty-free voluntary or partial repayments of their loan, up from 68% a year ago, while lifetime mortgages now include the option to ring fence equity. This means homeowners can retain some of the value of their property as a guaranteed minimum inheritance.
In addition, increased choice has come with lower pricing driven by greater competition in the sector: the average interest rate for equity release products was 5.22% as of July 2018, down from 5.27% in July 2017 and from 5.96% a year earlier. Comparing average rates by customer rather than by product shows that the typical new customer paid less than 5% across both drawdown and lump sum plans.
Government figures show the number of households in England purchased via a gift or loan from friends or family recently reached a post-2007/8 high of 1.1m.
Investing in property is continuing to be consistently cited by the public among the safest ways to save for retirement, second only to paying into an employer pension scheme. Additionally, the latest industry data shows for every £1 of savings withdrawn via flexible pension payments in the last 12 months, 50p of housing wealth was unlocked via equity release – up from 40p a year earlier.
A total of 38,912 households aged 55 and over used equity release products from members of the Council to unlock housing wealth in H1 2018. This included 21,490 new plans agreed, up by 28% from 16,805 a year earlier. A further 15,709 returning drawdown customers made withdrawals from their agreed reserve funds between January and June, up 25% year-on-year.
Throughout the first half of 2018, the average house price among both lump sum and drawdown customers were above the latest UK average house price of £228,384. Across both product types, the average customer continued to draw on proportionate amounts of housing wealth below the 50%+ maximum loan to values (LTV) available on the market. The average size of a lump sum plan was smaller in the first half of 2018 than in H2 2017, bringing the average loan-to-value down to 30.8%.
In contrast, the average drawdown plan increased, but customers continued to take less than a fifth (18.2%) of their total housing wealth as an initial advance – keeping further funds in reserve, limiting the build-up of interest over the lifetime of their plan.
David Burrowes, chairman of the Equity Release Council, said: “These figures highlight the rise in new products and increased product flexibility, which is helping older homeowners to fulfil a host of pressing personal, social and financial needs. This innovation has brought more competition to the later life lending arena, while maintaining the standards and protections which ensure equity release products are futureproofed to provide good outcomes for consumers.
“As customers navigate their way through a growing range of product choices – including retirement interest-only mortgages – the appropriate advice, guidance and support is needed to weigh up the various benefits, costs, flexibilities and protections to ensure they are suitable to meet both current and future needs.
“Industry and regulators must continue to work to ensure customers are aware of all the options available to them when deciding how best to support themselves and their families in later life, taking all their assets – including pensions, savings, investments and property – into consideration.”
Alice Watson, head of product and marketing at Retirement Advantage Equity Release, added: “More and more, equity release is becoming a norm – and the staggering innovation that we have seen in recent years has played a major part in driving that. The product development which has come to market has helped to open equity release up to a wider pool of customers whose needs weren’t tailored to before.
“Homeowners are becoming increasingly familiar and comfortable with equity release and the potential benefits it can bring. We’re seeing a marked shift towards a holistic approach to retirement planning, with property wealth being considered alongside pension pots, investments and other assets. This bodes well for the market continuing its strong growth.”