With an ageing population and rising levels of property wealth, equity release growth is continuing.
The latest Equity Release Market Report for Autumn 2018 from the Equity Release Council shows a doubling of equity release product options available to consumers compared with two years ago.
There are now 139 different product options, compared with only 24 back in 2007, showing the rapid growth in this market.
In addition to a rising number of equity release product options, there has also been significant growth in the number of equity release customers. The number of customers grew by 81% between the first half of 2016 and the first half of 2018.
According to the Equity Release Council, this rising number of customers are seeing their increasingly complex needs in later life met by a growing number of product choices.
Equity release products available on the market today offer greater flexibility than before, which allows customers to better manage their personal finances in later life and keep costs down.
80% of equity release product options now offer the choice to make ad-hoc, penalty-free voluntary or partial repayments of the loan. This is up from 69% a year earlier.
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, which is an important consideration for many parents considering equity release.
Increased choice in the equity release market has also come with lower pricing, thanks to greater levels of competition. According to the report, the average interest rate for equity release products fell from 5.96% in July 2017 to 5.22% in July 2018.
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.
Changing demographics is one factor driving this increased competition in the equity release market. The UK is forecast to have an extra 8.6 million people aged 65 and over within the next 50 years.
This means that demand for equity release is likely to continue rising, with more older people wanting to supplement their savings and income in retirement.
Changing attitudes to property wealth and retirement savings are also playing an important role, according to the Equity Release Council.
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 scheme.
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 earlier.
The report shows that a total of 38,912 households aged 55 and over used equity release products from Equity Release Council members to unlock housing wealth in the first half of the year.
Within this figure were 21,490 new plans, which was up 28% from the 16,805 new plans agreed in the first half of last year.
The average house price for both lump sum and drawdown customers was £228,384 in the first half of the year.
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 the first half of 2018, 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 of their total housing wealth as an initial advance. By doing this, drawdown customers are keeping further funds in reserve, and also 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 future proofed 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.”
If you’re considering equity release, do speak to us to discuss your options.