Latest industry data from the Equity Release Council reveals that homeowners over the age of 55 withdrew a record £8.2m of housing wealth every working day from April to June.
Quarterly equity release lending surpassed £0.5bn for the first time since records began.
The total of £514.4m of housing wealth unlocked during Q2 2016 was up 34% annually from £384.3m in Q2 2015, and 58% higher than two years ago when £325.6m was released in Q2 2014. Total lending for Q2 2016 surpassed the previous quarterly record of £452.6m in Q3 2015 by 14% (£61.7m).
It means that the three busiest quarters for equity release lending have all come within the last 12 months, as over-55s look in growing numbers to the wealth built up in their homes for a range of later life financial planning purposes.
Over-55s increased appetite to use housing wealthy has been supported by market developments which include new providers and increasing choice of products and features emerging. In addition, the market received support from the regulator in April when they amended the legislation to allow optional interest repayments to be exempt from mortgage affordability rules.
Comparing year-on-year, the Council’s figures show the biggest percentage growth in the value of lending in Q2 2016 was for lump sum lifetime mortgages – typically involving a larger release of housing wealth in a single payment – with a 37% (£56.8m) increase from £152.1m in Q2 2015 to £208.8m.
However, lending via drawdown lifetime mortgages – allowing consumers to make multiple withdrawals of equity as and when needed – continued to account for the larger share of the market, growing 31% (£72.4m) from £231.6m in Q2 2015 to £304.0m in Q2 2016. This annual growth rate was the highest seen in four years since Q2 2012, during the UK’s recovery from recession.
Home reversion plans also experienced a rise in Q2 with the total value of activity more than doubling year-on-year from £623,647 in Q2 2015 to £1.5m in Q2 2016.
Looking at new customers’ product choices, more than two in three (a 67% share) opted for drawdown products in Q2, up from 65% a year earlier, while the share of lump sum products dipped slightly from 35% to 33%. With market activity having grown significantly during that time, the number of new drawdown plans agreed in Q2 was up 27% year-on-year compared with 16% for lump sum plans.
Overall, it meant the total volume of new plans agreed across the whole market in Q2 2016 was up 23% year-on-year: the highest annual growth rate in nearly 13 years since Q3 2003. The 6,671 new plans agreed was the largest quarterly total since Q4 2008.
Nigel Waterson, chairman of the Equity Release Council, said: “These figures are the latest sign that UK homeowners increasingly see housing wealth as a fundamental part of their retirement funding plans. The long term rise of house prices has allowed many older homeowners to build up considerable reserves of housing equity, which have the potential to solve many of the financial challenges facing the UK’s ageing population.
“Growing demand from consumers since the recession has been met by a concerted effort from the sector to grow the range of available products and the reach of specialist advice. Looking ahead, this work will continue with an increasing focus on building relationships within the sector and with related markets such as residential mortgages and later life planning, so consumers can be referred for advice on equity release when it can help their circumstances.
“There is also an important role for government and regulators when it comes to financial education. As well as helping savers to understand the choices offered by the ‘pension freedoms’, it is just as important to help homeowners understand the options they have to put themselves on a stronger financial footing in later life.”
Bernie Hickman, chief executive, Legal & General Home Finance, added: “The growing popularity of lifetime mortgages is clearly reflected in these figures from the Equity Release Council, which show another record quarter and a market that appears on track to exceed £2 billion lending in 2016.
“More customers are talking positively about releasing equity than ever before. The result is that a greater number of borrowers are choosing lifetime mortgages to secure their retirement, to fund much-needed home renovations, or even to fund the next generation in their homeownership ambitions.
“While it is good to see another record quarter, there is plenty more to be done. The market could be significantly bigger considering how much housing equity is owned by those in retirment. Lifetime mortgages still make up a small part of the wider mortgage market, but with an ageing population there is a clear opportunity for releasing equity to become a mainstream retirement solution. More lenders securing partnership agreements like Legal & General did recently with Santander will bring lifetime mortgages to a wider audience, helping them pay off their interest-only loans or have a more enjoyable retirement.”