Over 200 customers per day choose equity release to manage their finances as £1.6bn of property wealth is withdrawn in Q2 2022, according to the latest figures from the Equity Release Council.
Homeowners aged 55+ took out 12,485 new equity release plans between April and June this year, equivalent to 205 new plans being agreed each working day.
The number of new plans agreed in Q2 increased 26% year-on-year when compared with the subdued market of Q2 2021 when pandemic restrictions remained in place but fell short of the peak of 12,891 recorded in Q4 2018.
New and returning customers withdrew £1.60bn of property wealth, with new plans sizes largely stable at around £135,000 while returning drawdown customers typically withdrew £13,506 each.
While more new customers opted for lump sum lifetime mortgages over drawdown lifetime mortgages for the first time in 13 years, since Q1 2009, increasing from 45% of new plans in Q2 2021 to 54% now.
David Burrowes, chair of the Equity Release Council, said: “The need to improve older people’s access to housing wealth was widely recognised by industry and policymakers long before the Covid-19 pandemic and current cost-of-living pressures emerged.
“The fact that hundreds of homeowners are now choosing to release equity each day, based on detailed financial and legal advice, is significant progress from the days when the market was considered an under-developed niche rather than the mainstream option it has become.
“Raising awareness of how modern equity release products work alongside other financial solutions is essential so people who are asset-rich but cash-poor can benefit from the wealth they have built up over their lifetimes and also support those around them.
“The recent trend towards lump sum products is likely to be influenced by customers’ continuing desire to gift money to younger family members and share their property wealth across generations, particularly if cost-of-living pressures are starting to bite.
“By making penalty-free partial loan repayments last year, customers reduced their future interest costs by tens of millions of pounds.
“The flexibility to make voluntary repayments, with no risk of repossession if they can’t afford to, is likely to be important to a growing number of people as they look to balance their books. The reality that interest rates have risen from historic lows will also impact people’s plans and the Council will monitor this closely as the year progresses.
“Today’s product range leaves a number of avenues open for customers to limit their overall borrowing costs. In every instance, expert advice and careful consideration are essential.”
Reaction
Mark Gregory, founder and CEO at Equity Release Supermarket:
“Similarly to the ERC’s latest Q2 2022 report, we’re seeing increased volumes of enquiries, with the total amount of equity released compared to the same period last year rising by 21.3%, and the number of plans taken out growing a further 8.1%.
“The ramifications of Covid and the cost of living crisis is beginning to track and likely the main cause for a surge in people using equity release for emergency funds. Our data highlights this shift, with a whopping 35.7% uplift in monies being used for emergency funds compared to Q2 in 2021.
“We’re seeing more and more that having the broadest choice of voluntary repayment plans is also vital to boosting the most successful customer outcomes.
“Furthermore, independence and whole of market options remain the cornerstone of customer choice – it is the only true way to provide customers with the broadest set of options when looking at penalty-free plans.
“Our revolutionary smartER technology – the industry’s first equity release search engine – enables customers to research and review equity release for themselves.
“Customers now have the ability to search the entire market, filtering product features that are the most important to them in advance of speaking to a specialist or completing a fact find.
“It’s innovations like these that ensure a customer’s understanding of equity release plans and features continue to grow, which is important when it comes to driving trust in the industry. The platform has also continued to grow in popularity since its launch last year.
Stephen Lowe, group communications director at retirement specialist Just Group:
“Demand for equity release has recovered strongly from the pandemic wobbles with the last three quarters each setting new lending records. The total amount released in the first six months of this year is more than £3.1 billion, 36% more than the previous H1 record of £2.3 billion in 2021.
“The number of new customers is also trending higher following the pandemic as we head into the traditionally busier second half of the year. Clearly lifetime mortgages, which now account for virtually the entire equity release market, are becoming a keystone of financial planning for some customers alongside their pensions and other savings.
“The business drivers continue to be very strong. House prices are still rising, providers are competing hard for business with extra features such as interest-servicing and medically underwritten rates. Locking into today’s interest rates – still near historic lows – is appealing. It’s likely some demand is from people who put plans on hold during lockdown, alongside those starting to feel a squeeze from rising household costs.
“Homeowners may be using equity release to generate lump sums, extra income or for estate-planning but the key point for customers is that they seek out high quality advice to ensure the plan fits their unique needs and aspirations.”
Simon Gray, managing director at equity release advisory firm HUB Financial Solutions:
“This is another strong quarter of data that shows a continued return to market growth after the disruption of the pandemic. The number of new customers was up by 26% on Q2 2021 and the total value of lending was 37% higher. These are by far the strongest first half figures ever seen and bode well for the rest of the year and beyond.
“This growth is underpinned by competitive interest rates and innovations such as medically underwritten rates and the Council’s new product standard allowing penalty-free partial repayments. The result is that the plans are becoming more customisable for different situations and this means professional advisers can personalise solutions for each unique client.
“To ensure customers get the most suitable plans and features requires highly professional, knowledgeable advisers who first understand the borrowers’ situations and requirements and then look at the most suitable solutions to meet their needs. These are very long-term commitments that each customer needs to understand fully, whether their goal is bolstering their income, estate planning, providing cash lump sums, or paying for care.”
Will Hale, CEO of Key, the UK’s largest equity release advice firm:
“Today’s figures from the Equity Release Council highlight a market that is stepping up to meet consumer wants and needs as we return to a post-pandemic society. Indeed, over 45,000 new and returning customers chose to use their housing equity to H1 2022 to support families, boost retirement income and repay debt.
“At a time when the UK is facing a cost of living crisis unlike anything we have seen for many years, the fact that older homeowners can use what is often their most valuable asset to help them manage their finances in later life should be celebrated. The modern later life lending market is well-regulated and progressive offering a wide range of products with flexible features and valuable customer protections.
“Our own Market Monitor highlighted that in the current rising interest rate environment, 40% of equity release customers used some or all of their funds to repay an outstanding mortgage.
With fixed interest rates for life and the ability to make both ad hoc capital as well as interest repayments, a lifetime mortgage can be an excellent option for an older borrower who is either unable to remortgage to a mainstream product or retirement interest-only mortgage due to affordability challenges or is facing a shortfall at the end of their interest-only mortgage term.
“Looking to the future as the later life lending market grows, we need to continue to put customer needs at the heart of the development of products and advice propositions and consider how we raise awareness of all the options available to an ever-more diverse customer base.”
Dave Harris, CEO of more2life:
“What a difference two years can make! In Q2 2020, The Equity Release Council figures suggested that lending to new and existing customers was nudging £700 million and today, we are pleased to see that it has more than doubled in Q2 2022 to £1.6billion.
“While there is no doubt this is driven by increasing numbers of customers who are taking the proactive choice to include their largest single asset in their later life planning, advisers and the wider later life lending community has certainly played a role. Speaking to networks, platforms and IFA firms, there is real interest in the role that property can play in helping people to enjoy a better standard of living in retirement.
“There is much for the industry still to do and we need to continue to focus on how we can best meet customers needs but the Q2 figures suggest that we are on the right track.”
Steve Wilkie, executive chairman of lifetime mortgage broker Responsible Life:
“The cost of living crisis is now ricocheting through the equity release market. Rising interest rates have sparked a surge in the proportion of borrowers opting for lump sum mortgages over those with drawdown facilities. This is the first time a majority have opted for this type of loan since Gordon Brown was Prime Minister, which also happens to be the last time interest rates were this high. That can’t be a coincidence.
“Rising interest rates are forcing up the cost of borrowing. This includes servicing unsecured debts, which borrowers are going to be keener than ever to pay down rapidly, fuelled by lingering uncertainty over how high interest rates will go. This can include credit cards, store cards, car and other loans. With the price of everything from fuel to housing at record highs, a desire to provide financial help to family members is also likely to be partly responsible. These are the sorts of financial outgoings that just won’t wait.
“The bottom line is that, in an inflationary environment, most retirees again feel they need all of their money on day one. This wasn’t the case over the past 13 years, when the majority felt able to defer some of their borrowing in a bid to reduce their overall interest payments.
“Drawdown allows homeowners to access money when they need it, and not pay interest on that borrowing until they do.”
Stuart Wilson, CEO of AIR:
“The Q2 Figures from the equity release council make interesting reading as they clearly highlight the vital role that housing equity is playing for hundreds of over-55s across the UK. For far too long people have considered equity release as a niche market but as it takes its rightful place as a key part of the later life lending sector, it is now time to focus on growth and how we can better serve customers.
“The introduction of the fifth equity release standard which guarantees new customers the opportunity to make ad hoc capital repayments within lenders criteria was a great step forward but there is more to do. With property wealth making up a significant proportion of many older people’s assets, we need to consider how we ensure that when they plan their later life finances, they consider all their funding options carefully.
“A vibrant and growing intermediary market will be at the heart of this and at AIR, we are committed to helping advisers build their expertise in this market and ultimately their businesses.”
Kay Westgarth, head of sales at Standard Life Home Finance:
“It is really encouraging to see that the number of equity release plans agreed between April and June this year is up 26% on Q2 2021. While last year we were very much still feeling the impact of the pandemic, this type of bounce back is a sign of a strong market and bodes well for the second half of what promises to be a record year for the sector.
“The fact that over 200 plans are being agreed every single day demonstrates the value of equity release as a financial tool for a huge number of over-55s across the UK, particularly during these challenging economic times. It is also interesting to see that lump sum lifetime mortgages are coming to the fore, which suggests that more people are looking to finance big ticket items like gifting or repaying existing mortgages.
“While moving borrowing from one mortgage to another is part of financial management for most homeowners, it is particularly valuable for over-55s who may be struggling to keep up repayments or meet affordability criteria.
“With all new equity release products offering ad hoc capital repayments, and many offering the opportunity to make ongoing interest repayments, based on guidance from their adviser, equity release products can be a huge support for many people looking to manage their borrowing with a fixed retirement income, enabling them to live comfortably in retirement.”
