The total value of equity release lending grew by 26% year-on-year to a new record high of £571.6m in the third quarter of 2016, according to the latest figures from the Equity Release Council (the Council).
It leaves total annual lending for 2016 on course to break through the £2bn mark for the first time, having reached £1.48bn in the first nine months of the year: just £128m short of 2015’s full year total (£1.61bn).
From July to September 2016, 7,414 new equity release plans were taken out: an increase of 11% from the previous quarter and up 23% year-on-year. This is also the first time the number of new plans exceeded 7,000 since Q4 2008.
Lump sum lifetime mortgages – which are often used for one-off payments such as clearing outstanding mortgages or other debts in addition to funding home improvements, travel or providing a living inheritance – proved popular in Q3, with market share increasing from 33% of new plans in Q2 to 37%. The 2,773 new plans agreed was an increase of 26% from Q2 to the highest number since Q4 2008.
The total value of lump sum lending rose by more than a quarter (26%) between Q2 and Q3 2016 from £208.8m to £264.1m. This was up by 44% year-on-year and the largest amount for more than a decade (Q4 2005).
Overall, drawdown lifetime mortgages accounted for 62% of new plans in Q3 – the smallest market share since Q4 2010. However, drawdown plans – which provide customers with the option to release housing wealth in a number of instalments and can help meet smaller costs or boost retirement income over a period of time – remain the most popular category, with home reversions continuing to represent a small (>1%) part of the market.
The 4,632 new drawdown plans taken out in Q3 2016 was the highest number seen since this type of product appeared on the market. This is also an increase of 4% from the previous quarter and 21% year on year.
Nigel Waterson, chairman of the Equity Release Council, said: “Coming 25 years after the first industry Standards were introduced for equity release, these record lending figures further highlight the appeal of using housing wealth as part of the solution to funding later life.
“Product innovation has played a huge role in the growing appeal of equity release to a range of customers, including the growing number of homeowners with interest-only mortgages due for repayment. The range of features available now give people the option to choose inheritance protection, downsizing protection, monthly interest repayments or voluntary capital repayments when they opt for a lifetime mortgage. At the same time, customers automatically receive three layers of protection encompassing regulated financial advice, clear product standards and independent face-to-face legal guidance.
“Increased competition and new entrants to the market have helped to lower the costs of equity release dramatically in recent years, making it even more attractive to customers. Indeed, average equity release interest rates fell further than any other category of mortgage product during the first half of 2016 with independent research showing customers have never been better served in terms of products and rates. Looking ahead, The Council will continue to work with regulators, government and industry to promote the sector and its role in supporting an ageing population.”
Stuart Wilson, channel marketing director at More 2 Life, added: “This year marks 25 years since the creation of the equity release market as we know it today, and these figures demonstrate a fantastic result as we reach another significant milestone in our industry of £2bn in lending. The ERC data reflects what we have been seeing here at More 2 Life – indeed, we are also on course for a record year of lending.
“The growth at More 2 Life is down to new funding that we have brought to the market enabling us to be innovative with product design and more efficient with back office operations. It is important that these areas were all put in place to allow us to accommodate for the uptick in retirement lending that we expected.
“The equity release market has come a long way in the last 25 years. But there’s lots more scope to grow and as an industry we need to have plans in place to ensure we can meet demand for advice and products for consumers.”