New figures show equity release for UK home owners has doubled since 2016

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New figures show equity release for UK home owners has doubled since 2016

Equity release lending in the UK has more than doubled in the last two years to reach £870 million in the first quarter of 2018 resulting in almost £10 million of housing wealth being withdrawn a day.

The value of quarterly lending in the first three months of 2018 increased by 25% year on year, according to the figures from the Equity Release Council which said that product innovation and flexibility has led to new customers rising by 22%.

The figures also show that the average initial instalment on a drawdown lifetime mortgage was up 4% from the final quarter of 2017 to £64,785 while the average lump sum lifetime mortgage was down 5% to £96,483.

The council also revealed that more older home owners are finding equity release a useful and flexible financial planning tool.

Home owners aged 55 and over released £870 million from the value of their homes from January to March 2018, an increase of 120% from £394 million in the first quarter of 2016. The data reveals a similar trend in new customer numbers, which have almost doubled from 5,175 to 10,195 over the same period, a rise of 97%.

The trend shows how equity release has become a more widespread financial choice among the over 55s as a way to use their property assets to help meet their financial needs. As a result of this increased activity, older home owners unlocked £9.7 million of housing wealth every day from January to March 2018, up from £4.3 million a day in the first quarter of 2016.

Increased demand has been met by an increase in product options available to consumers, which rose from 69 in January 2017 to 86 in January 2018 and the report shows that 70% of product options now offer consumers the choice to make ad-hoc, penalty free voluntary or partial repayments of their loan.

Drawdown lifetime mortgages continue to be the most popular product choice accounting for 68% of customers opting for this arrangement. Drawdown products typically see smaller amounts of housing equity withdrawn initially compared with lump sum plans, with an extra amount reserved for future use, thereby limiting the interest owed as it is only charged as funds are withdrawn.

Overall lending in the first quarter of 2018 surpassed the previous record in the fourth quarter of 2017 when £838 million of housing wealth was unlocked, pushing the 2017 annual total past £3 billion for the first time to £3.06 billion.

With the first quarter of 2018 having more than doubled the activity of the same quarter in 2016, the council predicts that industry could now be on course to provide as much as £4 billion of retirement funding for older homeowners over the course of this year.

‘It is clear that equity release has become an increasingly useful and flexible financial planning tool for older home owners. While pensioners’ income is on the rise, a potential over reliance on private pensions could lead to a retirement income shortfall in the future. New sources of income in later life are increasingly being sought, and this highlights the need for a rounded approach to retirement planning which considers all wealth, assets and product choices,’ said David Burrowes, chairman of the Equity Release Council.

‘Equity release provides financial help for consumers in a wide range of circumstances, including some looking to pay off interest only mortgages and others wanting to make home improvements or adaptations and fund social care needs in the comfort of their own homes. It can also help financial issues across generations,’ he explained.

He pointed out that recent data showed the generational gap in home ownership is continuing to grow with 30 to 32 year olds having a third of the property wealth that the same age group did 10 years ago.

‘Given that nearly 70% of all homeowner equity belongs to households aged 55 and over, it is inevitable that housing wealth will need to be used to help get the next generation onto the housing ladder. Equity release provides a valuable mechanism to provide this as a ‘living inheritance,’ said Burrowes.

‘With demand continuing to grow, equity release is providing solutions to a wide array of customer needs. As well as working closely with policy makers to inform decisions on social care funding and the single financial guidance body, The council continues to focus its efforts on upholding the highest standards of consumer protection that underpin confidence in the growing later life lending arena,’ he added.