The proportion of new equity release customers aged 55-64 dropped from 24% in 2011 to 21% in 2013: pushing up the average customer’s age towards 71. This trend continued in H1 2014 when just 17% of new customers fell into the 55-64 age bracket.
However, following the March 2014 Budget and MMR implementation on 26th April, this age group made up 20% of new equity release customers during the second half of the year.
Compared with H1 2014, the number of new equity release customers aged 55-64 was 32% higher in H2, which was also the busiest half year since 2008 for total new plans agreed.
The data suggests that changes in the residential mortgage and pensions markets are having an impact on the profile of equity release customers. Reports have surfaced that people are finding it increasingly difficult to access residential mortgage finance later in life under the MMR rules – particular if the desired term may stretch beyond their normal retirement age.
At the same time, many borrowers with interest-only mortgages are approaching their final repayment date. For those who have no or limited resources for a repayment vehicle, using equity release to pay off their existing mortgage is a common solution.
Some younger borrowers may also have used equity release in the second half of last year to meet an immediate need for extra funds, rather than accessing their pension savings ahead of 6th April 2015 when the new pension flexibilities will take effect.
Drawdown lifetime mortgages remain the most popular product type among equity release customers. Two-thirds (66%) of new customers chose a drawdown product last year, while 34% opted for lump sums and a small percentage (<1%) took out home reversion plans.
Drawdown customers typically have more valuable homes but withdrew less than a sixth of their total housing wealth as a first instalment during 2014 (£46,356). This sum is still 85% larger than the average single defined contribution pension pot of £25,000. Lump sum customers released an average of £69,118: 176% larger the average DC pension pot.
The comparison shows the significant contribution housing wealth can make as an extra source of funding in later life, to complement or compensate for people’s pension pots.
Nigel Waterson, Chairman of the Equity Release Council said:
“Equity release is helping people respond to a host of financial challenges at various points in later life, or simply enhance their standard of living so they can enjoy a more comfortable retirement. Part of the appeal lies in the option to cover off large one-off expenses. Paying off the last of an existing mortgage is often one of the biggest financial deadlines people have to face beyond the age of 55. The flexibility of equity release enables them to wipe the slate clean while also using their housing wealth to meet a range of other needs.
“The money they have put into property often proves a good investment over time. Releasing equity gives people a chance to use these funds in later life to enrich their lifestyle. Product choices are limited for older customers in the residential mortgage market, however new lenders are coming into the market to boost equity release activity – and bringing more choice and flexibilities for consumers.
“The pension freedoms will encourage careful consideration about how people can best fund their lifestyle beyond the age of 55. Whether or not they choose to withdraw a lump sum from their pension at any stage, homeowners can take great comfort from the significant wealth in their homes which often far exceeds the average single DC pot.
“It is vital for people to consider all the options available to them in retirement, and make an informed decision about how best to use the various products at their disposal. Not everyone needs a lifetime mortgage, but it should always be on the checklist for consideration."
Steve Wilkie, managing director at Responsible Equity Release, comments:
"It comes as no surprise that borrowers are looking towards more flexible solutions, such as lifetime mortgages, for lending into retirement.
"We've spoken to customers who have long standing relationships with their lenders, and have very little left on their mortgage balances, who are being refused term extensions simply because of a computer says no approach.
"Equity release is providing these people with a viable option, so that they can pay off their mortgage debt and aren't facing the prospect in retirement of possibly having to sell their home.
"When the FCA implemented their mortgage market review, there was a lack of clarity around mortgage lending into retirement.
"MMR stipulates that affordability needs to be provable for the lifetime of the mortgage. With traditional annuities giving a fixed income for life, the affordability test would have been an easy calculation.
"Now with the pension freedoms coming into effect, it will be harder to prove a set income, and this could make it even more difficult to borrow into retirement."
