Monday 24 September 2018
PRODUCT INNOVATION AND FLEXIBILITY DRIVE EQUITY RELEASE GROWTH
Equity Release Council publishes Equity Release Market Report Autumn 2018
- Product options more than double in two years: 139 in August 2018, up from 58 in 2016
- Number of homes in England bought with a gift or loan from family or friends reaches a new high of 1.1m
- New customer numbers driven by increased product flexibility and more competition in the market as people seek to meet pressing social needs such as giving help to younger generations and meet mounting care costs
- For every £1 of savings withdrawn via flexible pension payments in the last 12 months, 50p of housing wealth was unlocked via equity release – up from 40p a year earlier
The growth in equity release has been driven by innovation across the later life lending market, as the number of product options available has more than doubled in two years.
As of August 2018, 139 product options1 were available to consumers, more than double the number (58) seen two years ago, according to the Autumn 2018 Equity Release Market Report* from the Equity Release Council (The Council). By contrast, just 24 product options existed in 2007.
Discussions about the potential for housing wealth to help meet diverse social needs from funding social care to providing intergenerational support, have brought opportunities for innovation across the later life lending market. The growing base of equity release customers in recent years – up by 81% from H1 2016 to H1 2018 – has been met with an increase in product choices, helping to meet homeowners’ increasingly complex needs in later life.
In a sign that property wealth is emerging as a mainstream retirement funding choice, today’s equity release products also offer greater flexibilities to help customers manage their finances in later life and limit costs. Four in five (80%) product options offer consumers the choice to make ad-hoc, penalty-free voluntary or partial repayments of their loan, up from 68% a year ago, while lifetime mortgages now include the option to ringfence equity. This means homeowners can retain some of the value of their property as a guaranteed minimum inheritance.
Additionally, increased choice has come with lower pricing driven by greater competition in the sector: the average interest rate for equity release products was 5.22% as of July 2018, down from 5.27% in July 2017 and from 5.96% a year earlier2. Comparing average rates by customer rather than by product shows that the typical new customer paid less than 5% across both drawdown and lump sum plans.
Housing wealth’s role in the retirement landscape
Due to the changing demographic landscape – in 50 years’ time the nation is expected to have an additional 8.6m people aged 65 and over3 – demand for equity release is likely to continue to rise as more people look to supplement their savings and help meet pressing social needs, including mounting care costs and intergenerational lending.
Government figures show the number of households in England purchased via a gift or loan from friends or family recently reached a post-2007/8 high of 1.1m4, highlighting the importance of transferring wealth from one generation to the next.
Changing attitudes to property wealth and retirement savings are also playing an important role. Investing in property is continuing to be consistently cited by the public among the safest ways to save for retirement, second only to paying into an employer pension scheme5. Additionally, the latest industry data shows for every £1 of savings withdrawn via flexible pension payments in the last 12 months, 50p of housing wealth was unlocked via equity release – up from 40p a year earlier6.
Lending remains stable as customers typically draw on less than a third of their housing wealth
A total of 38,912 households aged 55 and over used equity release products from members of The Council to unlock housing wealth in H1 2018. This included 21,490 new plans agreed, up by 28% from 16,805 a year earlier. A further 15,709 returning drawdown customers made withdrawals from their agreed reserve funds between January and June, up 25% year-on-year.
Throughout H1 2018, the average house price among both lump sum and drawdown customers were above the latest UK average house price of £228,3847. Across both product types, the average customer continued to draw on proportionate amounts of housing wealth below the 50%+ maximum loan-to-values (LTV) available on the market. The average size of a lump sum plan was smaller in H1 2018 than in H2 2017, bringing the average loan-to-value down to 30.8%.
In contrast, the average drawdown plan increased, but customers continued to take less than a fifth (18.2%) of their total housing wealth as an initial advance – keeping further funds in reserve, limiting the build-up of interest over the lifetime of their plan.
David Burrowes, Chairman of the Equity Release Council, commented: “These figures highlight the rise in new products and increased product flexibility, which is helping older homeowners to fulfill a host of pressing personal, social and financial needs. This innovation has brought more competition to the later life lending arena, while maintaining the standards and protections which ensure equity release products are futureproofed to provide good outcomes for consumers.
“As customers navigate their way through a growing range of product choices – including retirement interest-only mortgages – the appropriate advice, guidance and support is needed to weigh up the various benefits, costs, flexibilities and protections to ensure they are suitable to meet both current and future needs.
“Industry and regulators must continue to work to ensure customers are aware of all the options available to them when deciding how best to support themselves and their families in later life, taking all their assets – including pensions, savings, investments and property – into consideration.”
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Notes to Editor
*All figures taken from the Equity Release Council’s Autumn 2018 Market Report, unless otherwise stated. The Autumn 2018 Market Report uses aggregated data supplied by all active provider 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 Autumn 2018 using data from new plans taken out in the first half of 2018, alongside historic data. All figures quoted are aggregated for the whole market and do not represent the business of individual member firms. Annual changes are rounded to the nearest percentage point while customer and lending data is reported to one decimal place.
- Product data supplied by Key
- Equity Release Council analysis of data from Moneyfacts/Bank of England. Rate changes measured in basis points (bps). Average equity release rates exclude products which do not meet the full Equity Release Council product standards
- Office for National Statistics, 2016-based population estimates, principal population projections
- English Housing Survey data, 2008-09 to 2016-17
- Office for National Statistics, Early Indicators from the Wealth and Assets Survey, August 2018
- Equity Release Council lending activity, HMRC flexible payments from pensions
- Average UK house price, according to the Land Registry’s June 2018 UK House Price Index
For further information, please contact:
Kia McLean or Hannah Beard at Instinctif Partners, on 020 7457 2020 or email:
About the Equity Release Council
The Equity Release Council is the representative trade body for the equity release sector with over 290 member firms and 870 individuals registered, including providers, regulated financial advisers, solicitors, surveyors and other professionals.
It leads a consumer-focused UK based equity release market by setting authoritative standards and safeguards for the trusted provision of advice and products. Since 1991, over 440,000 homeowners have accessed over £24bn of housing wealth via Council members to support their finances.
The Council also works with government, voluntary and public sectors, and regulatory, consumer and professional bodies to inform and influence debate about the use of housing wealth in later life and retirement planning.