The property wealth of retired homeowners is increasingly being used to clear unsecured debts and mortgages to strengthen their later life finances, according to new data from Key.
The number of customers using money from their homes to pay off credit cards and loans hit a three-year high of 35% in Q1 2019 which is five percentage points higher than in Q1 2018 (30%).
In addition, 28% used property wealth to clear outstanding mortgages compared with 21% in 2018.
Key’s data shows the numbers using property wealth to clear debts in the first three months of the year was the highest since the third quarter of 2016 and the third highest on record since Key started the Market Monitor in 2007.
Key’s Q1 2019 Equity Release Market Monitor shows new lending rose to £839.58 million with a further £340.42 million in new potential drawdown facilities also arranged. This takes the value of the market in Q1 2019 to £1.18 billion up from £1.03 billion in the first quarter of 2018 (£777.1 million initial advances and £252.9 future potential borrowing).
Plan sales rose 6.6% year on year to 11,190 (Q1 2019) compared with 10,495 in 2018, Northern Ireland, the West Midlands and Yorkshire & The Humber recording the biggest increases as growth spread across the country.
Customers released an average £75,032 during the three months and the most popular use of the money remains paying for home and garden improvements. 60% of people used their equity release for this purpose with many of these using some or all of the cash to future-proof their home for retirement. 31% chose to pay for holidays while 30% were able to use some or all the cash to help family.
Will Hale, CEO at Key, said: “Typically the equity release market has a quieter start to the year but the latest Q1 results suggest that we should see continued growth in 2019. The current challenging economic environment has seen a move away from holidays and home improvements to people tackling pressing immediate issues such as to pay off debt.
“Nearing or entering retirement with an income that might be exceeded or matched by debt repayments can be hugely stressful and may mean people need to make fundamental changes to their plans such as working longer. However, this will not solve everyone’s issues and is not even viable for some so looking into downsizing, equity release or other later life lending options might be the right answer. Not only will making sensible choices around property mean that people are less stressed but it will help to set them up for a more comfortable retirement in the future.
“Good independent expert advice is key to ensuring that older homeowners receive the most benefit from their property wealth and use it in the most appropriate way for them and their families.”
Alice Watson, head of marketing and communications at Canada Life Home Finance, added: “As part of the growth in the equity release market, there has been an expansion in the ways customers use equity release. People are certainly using the funds to manage debt, however many now tap into their property wealth to improve their lifestyle. Our own research shows that more than a fifth of our customers use the money to fund dream holidays and almost half use equity release to make renovations to their homes and gardens.
“With the needs of customers constantly evolving and a significant amount of money available for equity release – estimated to be at £376 billion – innovation is crucial to the growth of equity release. To sustain and build the overall market we also need an increase in the numbers of advisers who are qualified in equity release, which is why Canada Life is continuing to run workshops to help financial advisers achieve this.”