"The equity release market started well in 2020 and has proved remarkably resilient given the unprecedented circumstances the UK and the world finds itself in."
In Q1 2020, the number of over-55s accessing the wealth in their property via equity release increased but they took out more modest sums than previously, according to the latest research from Key.
Compared to this time last year, plan sales rose 6% while the amount released fell by 3.8%, from £839.6 million to £805.2 million.
These changes were in part fuelled by the increase in the sales of drawdown plans, which rose from 66% in Q1 2019 to 72% in Q1 2020. The total of reserved drawdown rose from £349.1 million in Q1 2019 to just over £390 million, leaving the market value almost unchanged at £1.2 billion.
The analysis also found that 37% of all equity released is used to repay debt and 21% is used for gifting, with just 8% being spent on holidays and 17% on age proofing customers’ homes or gardens.
Will Hale, CEO at Key, said: “Following a year of political and economic uncertainty the equity release market started well in 2020 and has proved remarkably resilient given the unprecedented circumstances the UK and the world finds itself in. Consumers are more cautious and while we are finding an increased number of people using equity release, they are taking out less and using more drawdown products to help future proof their later life finances whilst mitigating the impact of roll-up interest.
“Our new analysis of the driving force behind equity release decisions suggest that this is a multi-use product driven often by need rather than aspiration with substantially more of the proceeds being spent on debt repayment and helping family members than holidays. While in an ideal world, everyone would enter retirement debt free, equity release provides those who are not that lucky with real options – supported by a robust specialist advice process that is designed to help people make the right choices for their individual circumstances.”
Claire Singleton, CEO, Legal & General Home Finance comments:
“These figures demonstrate that, before the lockdown, there was an increased demand for equity release. While this was partly driven by restored consumer confidence, it is also due to the growing recognition of equity release as a valuable product.
“It’s too early to gauge the full impact of Covid-19 on demand, but we anticipate homeowners may increasingly look to supplement their income, or support family members hit by the crisis – our recent research found that half of all over-50s are concerned about their loved ones’ finances. Also, as lockdown eases, people will be once again looking to book holidays, home improvements, weddings and other ‘big ticket’ items which drive demand for equity release.
“As an industry, we must respond to this by ensuring customers receive careful advice that considers which products suit them best. Equity release will not be right for everyone, but for many it is an extremely useful boost to retirement income”