This is the largest annual figure since records began in 1992, exceeding the previous high (£1.21bn in 2007) by 14%.
This total is also a 29% increase from 2013, bringing the equity release market back above pre-recession levels as homeowners aged 55+ increasingly use their housing wealth to boost their finances and help with living costs in later life.
New data from The Council shows the value of equity release lending totalled £365.7m in Q4 2014: an increase of 18% year-on-year from £310.2m in Q4 2013. As a result, equity release lending reached £741m for the second half of the year. This is the largest amount in any half year since The Council began recording this in 2002, up by 16% from H1 2014 and by 25% since H2 2013.
The number of new equity release customers also broke records with more than 5,700 over-55s releasing equity from their homes in the last three months of 2014.
There were 5,712 new customers in the final quarter of the year, which is the largest amount in a single quarter for six years (Q4 2008 – 7,526). This is an increase of 3% from the third quarter of 2014 and a 12% rise year-on-year.
It pushed the total number of new equity release customers in 2014 to 21,336, a 13% increase from 2013 and the largest yearly figure since 2008. Customer numbers have now grown for four consecutive years since the recession.
The average value of equity release lending also hit a new milestone in 2014, reaching £64,787 - an increase of 14% from last year and exceeds the previous record of £60,504 in 1998 by 7%.
Two-thirds of new equity release customers (66%) chose drawdown products in 2014, in contrast to just 25% of customers in 2006. Lump sum products now account for 34% of new plans while home reversion account for less than 1%.
However, drawdown products account for a smaller share of the market by value (60% or £825m during 2014), as these products allow retirees to take smaller sums as and when they need them, often allowing more of their housing wealth to be preserved.
Nigel Waterson, Chairman of the Equity Release Council, said:
“These lending figures show that 2014 truly has been a record-breaking year for the industry. Equity release is proving to be a crucial tool for financial planning in retirement, and is allowing retirees to improve their standard of living and give them more flexibility to support themselves or family members.
“Many retirees have more wealth tied up in property than anywhere else, so it is only logical that this forms part of their plan to enjoy a comfortable retirement. The new pension freedoms won’t change the fact that many people do not have enough savings for later life. There is a danger that people’s pension pots will be ‘here today, gone tomorrow’ – but housing wealth is the one constant that many in this generation can rely on for support.
“Increasing awareness of the available products and their benefits means that equity release will continue to thrive in 2015 and bring more help to our ageing population. Continued collaboration with all those in the sector, including the regulator and government, will support further innovations and maintain consumer protections. With talk of mainstream lenders and new offers arriving in the market, we anticipate big things for equity release in the year ahead.”
Chris Prior, Manager, Sales & Distribution at Bridgewater Equity Release, said:
“These latest annual lending figures from the Equity Release Council show clearly how the sector progressed throughout 2014 with the largest amount of lending since such figures were recorded. This clearly shows the ongoing and growing demand for equity release products in order to satisfy a variety of wants and needs including paying off debt such as interest-only mortgages, home improvements or bolstering retirement income.
“The outlook for the market is extremely positive and we would not be surprised to see 2015 figures touching, or perhaps even surpassing, the £2bn mark. After many years of threatening to break into the mainstream it now appears that equity release is becoming a much more sought after solution. With the retirement income changes being introduced in April this year we would expect equity release product take-up to increase as retirees look to take advantage of the greater flexibility and also seek to extract the value in, what is likely to be, their greatest asset.
“It’s a simple fact that the vast majority of newly-retired individuals will not have sufficient pension pots. Equity release can offer an answer to certain individuals however it is vitally important that retirees make use of the Government's Guidance service but also see a specialist adviser who has knowledge and expertise on equity release, or at the very least, has a relationship with someone who does. Equity release will not be right for everyone but the individual will only know this if they take the appropriate financial advice.”
Geoff Charles, CEO of equity release adviser firm Bower Retirement Services, comments:
“Gone are the days when equity release was perceived as the black sheep of retirement finance. Now, this growing sector is becoming far more mainstream – as customers learn the benefits of releasing some of their housing wealth and as new lenders come to the party with more equity release offerings. Our own advisers predict that the market could double in size in the near future, as equity release becomes firmly embedded into the retirement finance landscape.
“The new awareness this has created is important. Most retirees find that their house is by far their largest asset. Having the option to release some of that hard-earned wealth can tangibly improve their quality of life, or their ability to support loved-ones. It may go towards gifting a child a deposit to get on the housing ladder, funding a long-awaited holiday, or paying for care. We need responsible, expert advisers to guide the older generation through the options available and set them on the right financial course and equity release is becoming a useful path for many. As understanding among customers improves, and as the offerings become ever more flexible, the only way is up for equity release.”
Helen Davies, Head of Implementation at Partnership, said:
“Although the older generation have a considerable amount of housing equity at their disposal, the equity release market has often been seen as a specialist one. However, today’s sales figures which show that almost £1.4bn has been released, clearly show that an increasing number of older homeowners consider their home to be part of their retirement assets.
“Two different sets of customers appear to be developing – those who use a lump sum to clear outstanding debts at the start of their retirement and those who use drawdown to boost their income. This clearly highlights the different ways that equity release can support the over-50s and strongly support the case for future market development.
“With the introduction of the new pension freedoms in April 2015 and more people actively discussing their retirement financing options, we expect to see the market continuing to grow and prosper into the future.”
