The Equity Release Council has reported that first-quarter lending activity in the equity release market has more than doubled in the space of two years between 2016 and 2018.
Homeowners aged 55+ released £870m from the value of their homes from January to March 2018: an increase of 120% from £394m in Q1 2016. The data reveals a similar trend in new customer numbers, which have almost doubled from 5,175 to 10,195 over the same period: a rise of 97%.
The Council explained that the trend shows how equity release has become a more widespread financial choice among the over-55s as a way to use their property assets to help meet their financial needs. As a result of this increased activity, older homeowners unlocked nearly £10m (£9.7m) of housing wealth every day from January to March 2018: up from £4.3m a day during Q1 2016.
Increased demand has been met by an increase in product options available to consumers, which rose from 69 in January 2017 to 86 in January 2018 according to The Council’s Spring 2018 Market Report. Competition has in turn driven greater innovation with new flexibilities coming to market. 70% of product options now offer consumers the choice to make ad-hoc, penalty-free voluntary or partial repayments of their loan.
New customers numbers in Q1 2018 marginally decreased from Q4 2017 (-1%) but were up by 22% year-on-year. Drawdown lifetime mortgages continue to be the most popular product choice with 68% of customers opting for this arrangement.
Drawdown products typically see smaller amounts of housing equity withdrawn initially compared with lump sum plans, with an extra amount reserved for future use – thereby limiting the interest owed as it is only charged as funds are withdrawn. New customers in Q1 2018 agreed drawdown plans with an average initial instalment of £64,797, a rise of 4% from £62,359 on Q4 2017 and 11% (from £58,466) year-on-year.
Among the one in three new customers opting for lump sum lifetime mortgages, the average amount of £96,483 was down 5% from Q4 2017 (£101,913) and broadly consistent with Q1 2017 (£96,340).
The number of existing drawdown customers returning to make withdrawals from their agreed reserves grew by 26% year-on-year in Q1 2018, from 6,019 a year ago to 7,588. Returning customers made an average withdrawal of £11,453 with returning drawdowns accounting for 10% (£89m) of lending activity overall. In contrast, the £15.9m of lending in Q1 2018 via further advances (extensions to existing plans) was the lowest level seen since Q2 2016 (£15.2m).
The overall Q1 2018 lending total surpasses the previous record quarter of Q4 2017, when £838m of housing wealth was unlocked – pushing the 2017 annual total past £3bn for the first time to £3.06bn.
The previous year (2016) saw £2.15bn of housing wealth unlocked by over-55s. With Q1 2018 having more than doubled the activity of Q1 2016, the industry could now be on course to provide as much as £4bn of retirement funding for older homeowners over the course of this year.
David Burrowes, chairman of the Equity Release Council, said: “It is clear that equity release has become an increasingly useful and flexible financial planning tool for older homeowners. While pensioners’ income is on the rise, a potential over-reliance on private pensions could lead to a retirement income shortfall in the future. New sources of income in later life are increasingly being sought, and this highlights the need for a rounded approach to retirement planning which considers all wealth, assets and product choices.
“Equity release provides financial help for consumers in a wide range of circumstances, including some looking to pay off interest-only mortgages and others wanting to make home improvements or adaptations and fund social care needs in the comfort of their own homes. It can also help financial issues across generations. Recent data showed the generational gap in homeownership is continuing to grow with 30-32-year-olds having a third of the property wealth that the same age group did 10 years ago. Given that nearly 70% of all homeowner equity belongs to households aged 55 and over, it is inevitable that housing wealth will need to be used to help get the next generation onto the housing ladder. Equity release provides a valuable mechanism to provide this as a ‘living inheritance’.
“With demand continuing to grow, equity release is providing solutions to a wide array of customer needs. As well as working closely with policy makers to inform decisions on social care funding and the single financial guidance body, The Council continues to focus its efforts on upholding the highest standards of consumer protection that underpin confidence in the growing later life lending arena.”
Nici Audhlam-Gardiner, managing director of Lifetime Mortgages at OneFamily, added: “The equity release market goes from strength to strength as more homeowners use their property to help fund their retirement. As the Equity Release Council statistics show much of this growth is being driven by innovation and providers offering products that help broaden the appeal of lifetime mortgages to more over 55s.
“In particular the ability for homeowners to pay interest on a monthly or ad-hoc basis removes one of the biggest concerns about the cost of equity release. Currently over 50% of OneFamily mortgages are where the homeowner is actively managing the interest, and of this, around two thirds (70%) pay on a voluntary ad-hoc basis and around a third (30%) pay on a monthly basis. We also give customers the ability to swap to a more traditional product at any time, giving them total flexibility should their personal financial situation change.
“We will continue to innovate in the market and have further product launches planned for later this year, which we believe will attract more over 55s to the market.”