Equity release continues to be popular with older home owners in the UK

Equity release continues to soar among home owners in the UK with activity reaching £700 million in a single quarter for first time, the latest figures show.

The value of quarterly lending in the sector in the second quarter of 2017 increased by over a third, some 36%, year on year as housing wealth continued to play a more prominent role in financial planning for retirement.

The latest data from the Equity Release Council shows that 8,454 new plans were agreed in the quarter, a rise of 27% compared with the same period in 2016 and the sector recorded activity from over 16,000 new or returning customers between April and June.

Drawdown plans remain the most popular product choice, accounting for 68% of all products taken out with the quarterly total of £700 million being the highest figure in any single quarter since the council started recording quarterly activity in 2002.

This continued growth means that second quarter lending activity has now risen 82% in the last two years, from £384 million in the second quarter of 2015. The second quarter total amounts to almost 90% of the activity recorded during the whole of 2011 in the wake of the financial crisis, since then housing wealth has become steadily more established as an option for retirement planning.

A breakdown of the figures show that 68% of new customers opted for drawdown, up from 67% in the second quarter of 2016 and 65% in 2015. Drawdown also made up 63% of total lending activity in terms of value, up from 59% a year earlier.

Lump sum products accounted for 32% of new plans agreed and 37% of total lending in the second quarter. The value of lump sum lending increased by 25% over the last 12 months from £209 million to £262 million and drawdown lending rose 44% year on year from £304 million to £438 million.

The council said that the figures demonstrate that older customers are increasingly looking towards the wealth in their homes, often their most valuable asset, to help fund their retirement.

‘Continued rapid growth in housing wealth withdrawals reflects an increasing appetite among older consumers to utilise bricks and mortar for funding retirements. The retirement income pressures facing many savers in the era of defined contribution pensions and low interest rates are encouraging home owners to consider a wider range of financial options,’ said Nigel Waterson, chairman of the Equity Release Council.

‘Housing wealth is an important part of bridging the gap between the comfortable retirement people want and the retirement they can afford from their savings. It is vital we build on recent work by regulators and industry to encourage more joined-up thinking between related areas of financial services, so that consumers have the best support for their transition into later life,’ he added.

According to Alice Watson, head of marketing at Retirement Advantage Equity Release, the popularity of equity release is partly due to increasing concerns that pensions savings alone won’t provide the income needed in retirement. ‘We also know from our own research that the majority of people want to stay in their properties when they retire, and the fact that equity release lets you do that is a popular draw,’ she said.

‘The sustained growth of equity release comes as it evolves and innovates to better suit customer needs. Providers are listening to customers and financial advisers and recognising that the products on offer need to be flexible enough to cater for a growing range of circumstances, but also to provide the stability and certainty many crave,’ she explained.

‘The challenge for equity release providers, if this growth is to be sustained, is to continue to innovate and develop products which will evolve to meet the needs of older property owners,’ she added.

The figures suggest that the equity release market is on course to pass £3 billion this year as lenders increasingly respond to growing customer demand for new solutions to a wide range of financial issues in retirement, according to Dean Mirfin, technical director at Key Retirement.

‘The expansion is impressive but it should be even higher were lenders doing more to signpost equity release to their interest only maturities. There are an estimated 10,000 borrowers this year alone who have either a shortfall or no way to repay their loan and a significant number are going to have a problem,’ he pointed out.

‘Most of the interest-only customers approaching us are finding us themselves. Some lenders are on board with offering wider solutions including equity release but this is still in the minority, and we hope more lenders start to do more,’ he said.

‘The continued strong growth in the equity release sector shows that, at pace, it is becoming an ever increasing element of retirement planning. The amounts of property wealth being released means that customers can afford to help themselves and families while also sorting out issues such as interest-only mortgage repayments and debts,’ he added.

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