Key Retirement has reported a significant increase in sales of lump sum equity release plans to 40% of the market during the first three months of the year.
In its Q1 Market Monitor the firm said the surge was due in part to looming interest-only mortgage due dates.
Its data following the Equity Release Council’s recent record first quarter figures provide deeper insights into market trends and shows 40% of customers are taking a single lump sum advance to reduce their debts, up from 30% for the same period in 2015.
Key believes the surge in sales jump is largely being driven by customers who need the maximum cash available rather than drawdown as they are using the lump sum to pay off shortfalls in interest-only mortgages. Average amounts released through equity release are now £76,000 and as high as £134,000 in London.
Its Market Monitor, which analyses data for Equity Release Council members and non-members, for the first three months of 2016 shows record growth with total property wealth released rising to nearly £415 million, up from £341 million last year.
The report by the over 55’s specialist shows rising numbers of retired homeowners using their property wealth to pay down increasing debts including loans, credit cards and mortgages.
Around 29% of customers used some or all of the money to pay off unsecured borrowing. Debt was primarily run up on credit cards or loans while 21% used some or all of their money to clear outstanding mortgages. 14% used the money to help with regular bills.
Dean Mirfin, technical director at Key Retirement, said: “The record high number of equity release plans being taken out underlines how property wealth is an important part of retirement planning.
“Pensioners are making the most of successful property investment and rising house prices to substantially improve their retirement standard of living. However retiring in debt is still a major issue.
“It’s long been predicted that as the first large wave of interest only mortgages maturities begins more customers will turn to equity release to plug this gap.”
The average amount released to boost retirement income increased 12% to £76,115 in the three months compared with £66,730. In London the average released was nearly £134,350 up from £129,991.
Home and garden improvements remained the most popular way of using the money with 63% of those releasing equity from their home doing so for this purpose. Customers are also using the money to treat family and friends with 21% citing this as a main reason. A further 28% are using the money to pay for holidays.
Across the country 10 out of 12 regions saw growth in the value of property wealth released with East Anglia recording an 80% rise, North West seeing a 48% increase and a 24% rise for London. The value released dropped 29% in the North and 16% in Northern Ireland. Growth continued in plan sales with 10 regions seeing increases and just two seeing decreases – the North saw plan sales decrease by 35% and Yorkshire and Humberside saw an 11% fall. Wales saw a 41% rise and East Anglia a 29% increase.
Nigel Waterson, chairman of the Equity Release Council, said: “The data shows how greater use of housing wealth to fund later life needs is helping to ease many of the challenges facing the UK’s ageing population for an ever growing number of customers. This is true before, at and during retirement, with our own analysis showing borrowers aged 55-64 leaning towards lump sum products while older borrowers favour drawdown arrangements.
“Releasing equity in later life can allow homeowners to tick a number of financial planning boxes simultaneously, from paying off an existing mortgage or personal debt to boosting their later life income, improving or adapting their homes, and providing a ‘living inheritance’ for younger family.
“This flexibility, along with demographic trends, means there is a growing argument for equity release to feature on all homeowners’ checklist as an option to consider as part of their retirement and estate planning.”
