Pent-up demand and low pricing boosting equity release recovery: ERC

Equity release lending held steady in 2020, helped by pent-up demand and low rates, according to the full-year figures from the Equity Release Council.

Related topics:  Later Life
Rozi Jones
28th January 2021
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"These figures offer encouraging signs of market resilience after a year that presented huge challenges to household finances and business operations."

Annual lending to new and existing customers totalled £3.89bn over the year, down from £3.92bn in 2019 and £3.94bn in 2018. 40,337 new plans were agreed in total compared with 44,870 in 2019.

Q4 activity was helped by pent-up demand from earlier in the year, as customers progressed plans that were put on hold when activity dipped to a four-year low in Q2.

The final three months of 2020 saw 11,566 new plans agreed, making Q4 the busiest quarter of the year in line with normal seasonal trends despite being the quietest year-end since 2017.

Favourable pricing saw the average equity release interest rate fall to 4.01% midway through Q4 2020, with the lowest rates at 2.30% – less than the average 10 year fixed rate mortgage.

During the nine months from April to December, new customer volumes have broadly reflected levels last seen in 2017 with 29,258 new plans agreed.

However the Council says that "caution remains" as 2020 ends with 10% fewer new plans agreed than 2019, while 11% fewer customers sought further advances and 21% fewer made drawdowns from existing plans.

David Burrowes, chairman of the Equity Release Council, commented: “These figures offer encouraging signs of market resilience after a year that presented huge challenges to household finances and business operations.

“Over the last decade, releasing equity to boost your finances in later life has grown from a niche pursuit to a competitive market that has stabilised at £3.9bn of lending activity for the last three years, despite significant headwinds driven by Brexit uncertainty and the Covid-19 pandemic.

“The unusual patterns of activity in 2020 show some customers biding their time before accessing property wealth. New plans were delayed from earlier in the year and fewer customers have made use of drawdown reserves or sought extensions of existing loans. Releasing equity is not an overnight decision and should only be entered into after considering all alternatives.

“In the right circumstances, access to fixed lifetime products at lower rates than the average 10-year mortgage is a big factor in the appeal of modern-day equity release, as is the flexibility to pay interest or repay capital for many products to keep total costs in check. Ten years of transformation have made equity release an important financial planning tool that is increasingly valued by our ageing population.”

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