The Equity Release Council has reported that the average equity release customer drew the equivalent of more than seven years of retirement income from their home in 2021.
With UK property wealth reaching a record £5.2 trillion by the end of last year, the equity release market saw customers withdraw £125,000 on average as a single lump sum or via incremental ‘drawdowns’.
The Council’s analysis shows this sum is equivalent to more than seven years of a single pensioner’s typical net income and nearly four years for the typical pensioner couple.
The market report shows product pricing crept up year-on-year from 3.95% in January 2021 to 4.16% in January 2022. However, more than 300 products are now available at rates of 4% or less, while the average customer secured a rate of 3.39% on their loan during H2 2021.
The second half of the year also saw more products adding the option to make voluntary penalty-free partial repayments, with 85% of products allowing this in January 2022 compared with 68% in July 2021.
From 28 March, this feature has become a fifth ‘product standard’ or prerequisite for all products recognised by the Council. It enables customers to reduce their loan sizes and borrowing costs where possible if their circumstances change, without committing them to regular repayments or risking repossession.
The percentage of products offering downsizing protection – giving customers the freedom to repay their loans in full, with no early repayment charge, in the event of downsizing – also increased from 50% in July 2021 to 63% in January 2022.
Overall, equity release lending activity for 2021 was six times greater than in 2011 (£4.8bn vs. £789m) with product choice having more than trebled in the last three years alone (665 in Jan 2022 vs. 202 in Jan 2019).
This forms part of a wider increase in borrowing activity among older homeowners, with lifetime mortgages making a consistent contribution to later life lending activity – accounting for around a quarter of new loans taken out by customers aged 55+ and three quarters of those taken out by customers aged 65+ since the end of 2019.
The Council’s analysis of wider property market activity shows the total value of UK housing reached £6.7 trillion at the end of 2021, rising by £1.6bn each day on average or £1m every minute.
When mortgage debt is discounted, it leaves the nation with an unprecedented £5.2 trillion of property wealth, equivalent to £211,000 per household.
As equity release products grow in popularity as a way to access these funds, the Spring 2022 report includes five considerations for consumers to help manage later life borrowing costs.
David Burrowes, chair of the Equity Release Council, said: “After years of putting money away in bricks and mortar, older homeowners are turning the tables and taking funds from their homes in order to boost their retirement income, meet one-off costs and gift a living inheritance to family.
“With £1 million added to the value of UK housing every minute last year, the options afforded by property wealth will feature in many people’s thoughts as they make financial plans for the future.
“The equity release market’s return to growth is part of a wider pick-up in later life lending activity, and the flexible design of modern lifetime mortgages gives customers more ways to manage their finances and access life-changing sums of money at a lower cost.
“While many aspects of today’s market have been transformed in the 30 years since consumer safeguards were first established, firm foundations remain in place so no customer need ever worry about owing more than their home is worth and can rest easy in the knowledge they can remain in their home for life with no threat of repossession for not keeping up with repayments.
“As we move into an environment of growing cost-of-living pressures, the importance of rigorous advice will be greater than ever so that decisions to release equity continue to provide long-term satisfaction as well as short-term relief.”
Craig Brown, CEO of Legal & General Home Finance, added: “The property market has boomed over the last couple of years and older homeowners, in particular, hold a significant share of the UK’s housing wealth. We’re pleased to see just how many people are making the most of the increased equity they have in their homes, and we believe innovation in the market, and even greater product choice, are helping lifetime mortgages play a bigger role in retirement planning, whether that’s paying off existing interest-only mortgages, supporting younger generations or helping to fund individual retirement goals.
“Legal & General’s own analysis of Office for National Statistics data last November found that homeowners in just over half of the areas in England & Wales could access more from the value of their home than is saved in the average pension pot (£61,930). As the cost-of-living crisis continues to bite, and we feel the effects of increasing energy costs, it’s likely more people will be looking to take advice on the options available to them, including how to make the best of the equity they have available in their home.”
