The later life lending market saw £884 million being released over the third quarter of 2020, according to Key’s Q3 Market Monitor.
This is an increase from Q2 (£521 million) when the coronavirus first hit but in line with Q3 2019 (£887 million).
In addition, the number of customers has also dropped by 9% year-on-year – 11,772 (Q3 2019) to 10,671 (Q3 2020) – as clients focused on essential spending such as debt repayment and support for their wider families.
47% (£415 million) was spent on clearing debts while 25% (£221 million) was used to support family and friends via gifting. Around 11% (or £97 million) of the amount released is spent on home improvements – mainly for age-proofing houses so people can stay in their homes – while just 3% (or £26 million) was spent on holidays.
Meanwhile, spending on more aspirational categories such as home renovations (-6% to 11% in Q2 2020) and holidays (-5% to 3% in Q3 2020) fell steadily over the last nine months.
Will Hale, CEO at Key, said: “In Q3, we saw a return to more normal market conditions driven by many customers looking to make their finances more robust by reducing their outgoings and/or supplementing their income. While the payment holidays offered by big residential lenders have certainly benefitted many, older borrowers who either fear redundancy and a tough climb back into work or early retirement have looked to use equity release to reduce the financial pressure they are feeling. Safe in the knowledge that not only are rates at historic lows but through modern flexible equity release plans they can service interest or make ad hoc capital repayments if they so wish to mitigate the impact of roll-up interest.
“Others have seen the Stamp Duty Holiday as the ideal time to help younger relatives onto the property ladder and we’ve seen £221 million being gifted with much being pumped into the housing market with recipient’s receiving an average of £57,549 to support their dream of owning a home. The market is maturing and is now very much focused on essential rather than discretionary spending.”
Plan sales in the three months to September 30th dropped 9% to 10,671 from 11,772 year-on-year while the value of property wealth released was virtually unchanged at £884 million compared with £887 million (Q3 2019).
30% more plans were taken out between Q2 (8,374) and Q3 (10,671) and the value of the equity release also rose sharply from £521 million (Q2) to £884 million (Q3) as we returned to more normal trading conditions.
| Q3 2019 | Q2 2020 | Q3 2020 | |
| Number of plans taken out | 11,772 | 8,374 | 10,671 |
| Value of plans taken out | £887m | £521m | £884m |
| Average amount released | £75,300 | £82,393 | £82,827 |
Older homeowners on average released nearly £83,000 in property wealth during the three months compared with £75,300 in the third quarter of 2019 as they focused on repaying borrowing such as mortgages.
67% of plans taken out were drawdown enabling customers to manage their borrowing with 33% of customers using lump sums plans. Interest rates in the three months started from 2.47% with the average customer paying 3.05% – the lowest average rate on record.
Hale added: “While it is hard to predict what the market might look like at the end of 2020 what we can say is that demand remains strong and now more than ever there is a focus on providing the right type of advice for customers.
“Less than 15% of those who enquire about equity release end up taking a plan. Instead they downsize, find support from family or decide, with guidance from their adviser, that other later life lending products may or be suitable e.g. retirement interest only mortgages or whilst equity release wasn’t right for them at the moment it might be an option to revisit in the future. Those who did take out equity release used it for a variety of reasons including repaying debt to make themselves more financially secure and helping to support their wider families. Holidays and home renovations now account for under 15% of the funds released.
“As an industry, the pandemic forced us to re-evaluate our approach to serving customers and truly embrace technology. Video conferencing, digital signatures and faster processing will benefit our current and future customers. There will be tough times ahead, but the market remains strong and will continue to evolve to ensure that products and advice services are well positioned to help customers use their housing equity to navigate through later life.”