*Equity Release Council publishes Spring 2015 Market Report*

• Percentage of customers aged 55-64 rose from 17% in H1 2014 to 20% in H2
• The average first instalment taken through a drawdown lifetime mortgage is 85% larger than the average DC pension pot, while the typical lump sum is 176% larger

The surge of equity release activity in the second half of 2014 saw younger borrowers turning to lifetime mortgages in the wake of the Mortgage Market Review (MMR) and the 2014 Budget pension announcement, according to the Spring 2015 edition of the Equity Release Market Report.

The in-depth report from the Equity Release Council (The Council) shows that as the market has grown, the proportion of new equity release customers aged 55-64 dropped from 24% in 2011 to 21% in 2013: pushing up the average customer’s age towards 71.

This trend continued in H1 2014 when just 17% of new customers fell into the 55-64 age bracket. However, following the March 2014 Budget and MMR implementation on 26th April, this age group made up 20% of new equity release customers during the second half of the year.

Compared with H1 2014, the number of new equity release customers aged 55-64 was 32% higher in H2, which was also the busiest half year since 2008 for total new plans agreed. The average age of customers choosing drawdown products was unchanged at 71.6 from H1 to H2 – but the average age of those choosing lump sums fell from 68.8 in H1 to 67.6 in H2.

Graph 1: Growth of equity release customer numbers by age group

The data suggests that changes in the residential mortgage and pensions markets are having an impact on the profile of equity release customers. Reports have surfaced that people are finding it increasingly difficult to access residential mortgage finance later in life under the MMR rules – particular if the desired term may stretch beyond their normal retirement age.

At the same time, many borrowers with interest-only mortgages are approaching their final repayment date. For those who have no or limited resources for a repayment vehicle, using equity release to pay off their existing mortgage is a common solution.

Some younger borrowers may also have used equity release in the second half of last year to meet an immediate need for extra funds, rather than accessing their pension savings ahead of 6th April 2015 when the new pension flexibilities will take effect.

Nigel Waterson, Chairman of the Equity Release Council said:

“Equity release is helping people respond to a host of financial challenges at various points in later life, or simply enhance their standard of living so they can enjoy a more comfortable retirement. Part of the appeal lies in the option to cover off large on-off expenses. Paying off the last of an existing mortgage is often one of the biggest financial deadlines people have to face beyond the age of 55. The flexibility of equity release enables them to wipe the slate clean while also using their housing wealth to meet a range of other needs.

“The money they have put into property often proves a good investment over time. Releasing equity gives people a chance to use these funds in later life to enrich their lifestyle. Product choices are limited for older customers in the residential mortgage market, however new lenders are coming into the market to boost equity release activity – and bringing more choice and flexibilities for consumers.”

Withdrawals of housing wealth far outweigh typical pension savings

The Spring 2015 market report shows drawdown lifetime mortgages remain the most popular product type among equity release customers. Two-thirds (66%) of new customers chose a drawdown product last year, while 34% opted for lump sums and a small percentage (

Drawdown customers typically have more valuable homes but withdrew less than a sixth of their total housing wealth as a first instalment during 2014 (£46,356). This sum is still 85% larger than the average single defined contribution (DC) pension pot of £25,000.¹ Lump sum customers released an average of £69,118: 176% larger the average DC pension pot.

The comparison shows the significant contribution housing wealth can make as an extra source of funding in later life, to complement or compensate for people’s pension pots.

Graph 2: How the typical amounts of equity released compare to average pension pots

Nigel Waterson, Chairman of the Equity Release Council commented:

“The pension freedoms will encourage careful consideration about how people can best fund their lifestyle beyond the age of 55. Whether or not they choose to withdraw a lump sum from their pension at any stage, homeowners can take great comfort from the significant wealth in their homes which often far exceeds the average single DC pot.

“It is vital for people to consider all the options available to them in retirement, and make an informed decision about how best to use the various products at their disposal. Not everyone needs a lifetime mortgage, but it should always be on the checklist for consideration.”

-Ends-

For further information, please contact:

• Andy Lane or Sam Fisk, The Wriglesworth Consultancy, on 020 7427 1400 or email [email protected]

Notes to editors

¹ Source: The Pensions Regulator, 2013/14

Methodology

The Equity Release Market Report is designed and produced by The Wriglesworth Consultancy on behalf of the Equity Release Council. It uses aggregated data supplied by members of The Council to create the most comprehensive view of consumer trends and product uptake across the equity release industry.

The latest edition was produced in February 2015 using data from 90% of new equity release plans taken out last year, alongside historic data from over 37,000 new plans up to 2013. All figures quoted are aggregated for the whole market and do not represent the business of individual members. For a comprehensive list of members, please visit The Council’s online member directory.

About The Equity Release Council:

The Equity Release Council was formed in May 2012 following the expansion of the remit of SHIP (the UK’s equity release trade body for product providers). The new body now represents over 350 members: providers, qualified financial advisers, solicitors, surveyors, intermediaries and other interested parties – each committed to The Council’s Statement of Principles that aims to ensure consumer protections and safeguards.