Equity release lending soars 28% to ten-year high

Equity release lending saw annual growth of £198m in H1 2016 to £908m - the highest level seen for over a decade, according to The Equity Release Council.

Related topics:  Retirement
Rozi Jones
27th September 2016
Nigel Waterson Equity Release Council
"Growth is being driven by a combination of rising consumer demand and continuing signs of innovation and change in the market."

Lending in the second quarter of 2016 exceeded £500m for the first time, setting a new record for the highest quarterly lending total.

The Council has attributed the rise to a growing number of providers and products, as well as increasing competition. Average lifetime mortgage rates fell further (24 basis points) than any other category of mortgage products during the first half of the year, reaching 5.96% in July with an increasing number of sub-5% rates available.

Drawdown lifetime mortgages remained the most popular product choice in H1 2016, with 67% of new plans falling into this category. This continues the trend seen over the last five years where at least 65% of new plans agreed during every half year period since H1 2011 have been drawdown. A total of 7,917 drawdown plans were agreed: the largest number in any first-half period on record.

For the second successive half-year period, market data indicates over 50% of new plans allowed customers to make voluntary repayments up to a certain value – typically 10% per annum – without an early repayment charge.

Another emerging feature being offered by some providers is downsizing protection. This typically allows the loan to be repaid in full without the requirement to pay an early repayment charge if this is done in conjunction with moving to another property, providing the loan has been running for at least five years.

The average age of equity release customers in H1 2016 remained just below 70 (69.9), with the age bracket from 65-74 remaining the most common for taking out a new plan.

Comparing year-on-year, the percentage of new customers aged 55-64 has increased from 17.5% to 21.2%. This may be a sign that people are starting to look at housing wealth as a potential asset earlier in the retirement planning process, and that more find themselves with existing borrowing – including interest-only mortgages – to pay off as they move into later life. However, customers in the younger age bracket continue to be outnumbered by those aged 75+.

Among drawdown plans, the typical first payment dipped from 15.4% in H1 2015 to 14.5% in H1 2016, with customers instead holding more housing wealth in reserve to draw on at a later date if needed (up from 10.6% to 12.3%). The average LTV of lump sum customers also dropped year-on-year from 32.0% to 27.6%.

Nigel Waterson, Chairman of The Equity Release Council, commented: “Growth is being driven by a combination of rising consumer demand and continuing signs of innovation and change in the market. In terms of demand, savings shortfalls and other financial challenges leave many over-55s looking for an extra source of income in later life, while housing wealth also offers a vehicle for intergenerational transfer of wealth and inheritance planning.

“The industry response so far this year has already seen new providers, partnerships and new potential emerge, with closer relationships being built with related areas of financial services including residential mortgages and later life financial planning. Established and new providers are making strides to compete on interest rates, expand the product range and introduce new flexibilities alongside the Standards and guarantees that have established a safe and reliable market for consumers over the last 25 years.

“The Council will continue to work with regulators, government and industry partners to ensure that consumers can access a high quality of expert advice and products to support their financial wellbeing. Equity release has an important role to play as part of the broader drive to support the UK’s ageing population.”

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