The first quarter of 2017 saw the equity release sector reach record annual growth in new customers and total lending, the Equity Release Council has reported.
Both quarterly measures now stand at record highs, and show sustained momentum following a record breaking 2016 in which annual lending reached £2.15bn. The figures are the latest sign of burgeoning supply and demand for products allowing older homeowners to unlock their housing wealth in later life in order to boost their retirement finances.
A total of 8,351 new equity release plans were agreed in Q1 2017: 61% higher than the 5,175 recorded in Q1 2016. Meanwhile, the total value of equity release lending in Q1 reached £697 million, up by 77% from £394 million in Q1 2016. In both cases, the year-on-year growth is the highest seen in any quarter since quarterly records began in 2002.
This is also the first time since 2003 that the equity release sector has been busier in the first quarter of a new year than the final quarter of the previous year. Between Q4 2015 and Q1 2016, the number of new equity release plans agreed fell 19% while the total value of lending fell 11%. In contrast, the number of new plans increased 1% (from 8,303) from Q4 2016 to Q1 2017 while the total value of lending by increased 4% (from £670 million).
Comparing back over two years to Q1 2015 – the last quarter before the ‘pension freedoms’ were introduced – the number of new plans agreed in Q1 2017 was 71% higher (having been 4,880) while the total amount of Q1 lending has more than doubled from £326 million (an increase of 113%).
The Council said that, in the wake of reforms that have given consumers greater access to their pension savings and abolished the compulsory purchase of annuities, the figures suggest older homeowners are increasingly looking to their housing wealth as one of a range of assets to use as part of their retirement financial planning.
In terms of product split, drawdown lifetime mortgages remain the most popular choice of new plan among equity release customers. However, lump sum lifetime mortgages saw the highest rate of annual growth in both new customer numbers and the total value of lending in Q1 2017.
Compared with Q1 2016, the volume of new lump sum plans agreed increased by 94% from 1,719 to 3,337. This meant that lump sum plans accounted for 40% of all new plans agreed across the quarter – the highest market share since Q3 2009. The total value of lump sum lending – including further advances – also grew by 110% from £153 million to £321 million.
In addition to the 8,351 new plans agreed, Q1 2017 also saw 6,019 existing customers with drawdown lifetime mortgages – which allow multiple withdrawals of housing wealth up to an agreed amount over a period of time – tap into their unused reserved facilities. This is the first time that aggregated data has been collected and published for this activity. A further 766 existing customers across all product types agreed further advances on their current plans.
Nigel Waterson, chairman of the Equity Release Council, said: “The early months of 2017 have bucked the seasonal trend of a slower start to the year, with both new customer numbers and total lending reaching record levels. Alongside this, the annual rate of growth is also the fastest that the sector has seen, as equity release continues its progress to becoming a mainstream retirement product among older homeowners.
“Much of this activity is due to increasing supply as well as growing demand. The past year has continued the trend of new providers, products and flexibilities coming onto the market. Regulatory changes, such as the common-sense relaxation of affordability rules for interest-served products, have also provided more scope for the sector to meet burgeoning demand.
“Equity release can offer a valuable solution to help meet the many and varied financial demands people face in later life, backed by a host of product safeguards along with financial and legal advice. Consumers continue to find equally varied uses for their housing wealth, including paying off existing debt such as interest-only mortgages, helping younger generations onto the housing ladder, investing in home improvements and improving their lifestyles in retirement.”
Stephen Lowe, director at Just, added: “It’s 15 years since the industry started monitoring equity release sales and these figures show it’s now a valuable way to fund retirement. People are increasingly inclined to use their housing wealth to top up their retirement income – which isn’t surprising given that the value of a house is now, on average, ten times the value of someone’s retirement savings.
“The idea of a pension and a property being separate things has shifted and property is now accepted as a way to fund retirement. Equity release products offer people flexible and secure ways to use the wealth they have tied up in their homes to help meet the daily costs of retirement. They no longer have to choose between their property as a home to live in or a financial asset – equity release allows them to choose both.”