The second quarter of the year saw sales of new drawdown mortgages grow while take-up of new lump sum mortgages mirrored volumes from the same period in 2018.
The latest quarterly market figures from the Equity Release Council, the UK sector trade body, reveals 7,227 new drawdown lifetime mortgages were taken out in Q2 by older homeowners seeking to release cash from their properties.
This total was up 5% from Q1 2019 and 2% from Q2 2018. 67% of new plans taken out between April and June were drawdown, the highest share seen since Q4 2017.
Meanwhile, 3,502 new lump sum lifetime mortgages were taken out, higher than any quarter prior to Q2 2018 despite being the lowest quarterly total seen over the last year.
The Equity Release Council said its data highlights the average size of new drawdown plans was consistent with the previous quarter in terms of customers’ first withdrawal (£63,166 versus £62,416 in Q1), although customers reserved more modest amounts of housing wealth for future use (£35,903 compared to £37,069 in Q1). The average size of a new lump sum plan taken out in Q2 was also scaled back slightly to £93,712 (-4% on Q1).
Total clients served rose by 2% over the quarter to 20,866 and were up 3% year on year. Although the number of new customers was down 1% on Q1 to 10,731, the number of returning drawdown customers increased 7% to 9,154 over the same period, driven by more existing customers having these products.
Total lending between April and June fell slightly compared to Q2 2018 (- 3%) to £911.3m with the year on year comparison decreasing by 6%. Following the busiest Q1 of any year to date, this meant overall market activity in the first half of 2019 was broadly in line with H1 2018.
A total of £1.85bn of housing wealth was unlocked in H1 2019 (versus £1.84bn a year earlier) with 21,585 new plans agreed (versus 21,490 in H1 2018) and a total of 41,263 customers were served (compared to 38,912 in H1 last year).
David Burrowes, chairman of the Equity Release Council, said: “The number of people drawing on housing wealth in later life remains high by historic standards and remains an important mainstream funding option for many, despite short-term activity inevitably showing signs of the uncertainty that has impacted other areas of the economy in the current political climate.
“The long-term trend of an ageing population with more individual responsibility for funding retirement and lifestyle needs in later life is unchanged. The emergence of drawdown as the most common product choice shows how innovation has given customers more flexible options to build their plans around.
“Older homeowners are recognising the benefits of including their property wealth as part of their later life financial plans. Indeed, our research shows that more than 50% of people aged 45+ already do so. This data highlights the considered approach that customers take when accessing their property wealth; we will continue to see bricks and mortar play an important role alongside pensions, savings and other assets.”
Dave Harris, chief executive officer at More 2 Life, said: “While today’s figures suggest that the equity release market’s significant growth in recent years may be slowing down, there is no denying the continued appetite for equity release among older homeowners as they look to unlock the wealth tied up in their homes. Drawdown lifetime mortgages – which allows people to reserve an amount and then take it in tranches – has proven to be particularly popular this past quarter as customers focus on meeting clearly defined needs.
“Looking to the future, we believe that it is vital for lenders in this sector to innovate and add more product choice in this area in order provide the flexibility that customers’ desire. Advisers also have a huge role to play in the expansion of the equity release industry and we need more advisers to take CeMAP or at least keep abreast of the latest industry trends to ensure borrowers are aware of all the options available to them as they navigate the later life lending market.
“The current uncertain political and economic climate has contributed to the slowdown in equity release growth in the past three months, but an ageing population and shrinking pension pots will ensure that equity release remains an increasingly popular lending option in the future.”
Alice Watson, head of marketing and communications at Canada Life Home Finance, added: “It’s great to see that the equity release market reached £1.85 billion in the first half of the year, on a par with the first half of 2018. However, a drop in new lump sum lifetime mortgages to the lowest level seen over the past year suggests the market has slowed, possibly in response to the political uncertainty in the UK.
“On the back of yet another record-breaking year for the market in 2018, and strongest ever quarter in January to March 2019, it was looking like the market’s rapid growth would continue in 2019. The slight dip in performance will likely be temporary as homeowners take stock of the current political climate. However, the sector shouldn’t ignore that the number of homeowners considering their property wealth alongside other assets remains high.
“There is still a chance 2019 might break records, as the numbers also suggest that the popularity of the product is increasing, with the number of customers drawing down from existing lifetime mortgages growing over the quarter. To meet this increased demand, we need to ensure that advisers have the right tools at their disposal to help customers with their lifetime mortgage needs.”