Equity Release Product Trends Revealed as Industry Responds to Consumer Demand
Equity release customers saw unprecedented levels of product choice and flexibility in the first six months of 2019, according to the Equity Release Council’s Autumn 2019 Market Report.
This comes as a total of £1.85bn in housing wealth was unlocked in H1 2019 by homeowners aged 55+ to support their later life financial planning.
- Equity release customers see unprecedented levels of product choice and flexibility in the first six months of 2019
- Top growth areas over the past year include options for sheltered or age-restricted accommodation, making regular interest payments, downsizing protection, inheritance guarantees and drawdown facilities
- Average equity release rates fell below 5% for the first time to 4.91% in July 2019
- The market has continued to develop and mature in recent years, energised by strong competition in the market and underpinned by robust consumer safeguards
In a sign that the industry continues to respond to consumer demand for more flexibility and choice, the range of product options increased two-fold compared to this time last year to almost 300 options.
Energised by strong competition in the market and consumer demand, there has been continued growth across all product features – underpinned by Equity Release Council standards guaranteeing three levels of protection including product safeguards, regulated financial advice and independent legal advice.
The top growth areas over the last year include options for sheltered or age-restricted accommodation, interest-serviced (regular interest payments) options, downsizing protection, inheritance guarantees and drawdown facilities.
Table one: Equity release product options and features
|Product options with this feature – August 2018||Product options with this feature – August 2019||Annual change (%)|
|Sheltered/age restricted accommodation||42||155||269%|
|Interest-serviced (regular interest payments)||22||81||268%|
|Voluntary/partial repayments with no early repayment charge||99||178||80%|
|Fixed early repayment charges||75||116||55%|
|Regular income payments*||0||16||n/a|
|Total product options||126||287||128%|
Source: product data supplied by Key, August 2019
*Products offering the regular income payments feature were introduced to market January 2019.
Product options offering the ability to make regular interest payments increased to 81 in August 2019, up 80% since the start of the year and almost quadrupling year-on-year. This feature helps reduce the build-up of interest in the long run. Unlike other retirement mortgage products, customers can pay interest in part or in full without the risk of repossession if payments are no longer affordable, with the option of switching to roll-up at any point.
There has also been a notable annual rise in product options available on sheltered and/or age restricted accommodation (269%), while the range of options offering downsizing protection have doubled. This feature allows customers to downsize and repay their loan without incurring an early repayment charge – a key consideration in later life.
Products offering inheritance guarantees have seen an 88% year-on-year increase. This gives customers the option to ring-fence part of their property’s value to leave behind as a guaranteed minimum inheritance.
Average equity release rates fall below 5% for first time
The Market Report also shows the average equity release rate at a record low of 4.91%. Over half (58%) of products offer a rate of 5% or less, while a fifth (21%) of products are priced at 4% or below – with these rates being fixed or capped at a maximum limit for the entire life of the loan.
This growing product range with increasingly competitive rates comes at a time there are an estimated 20.5 million people aged 55+ in the UK, including 1.6 million aged 85+, with those who own their home outright aged 67.7 on average. This is approaching the typical age that customers take out equity release – averaging 70.3 years for new drawdown plans and 68.0 for new lump sum plans. This comes as over half (51%) of homeowners aged 45+ see money invested in property as part of their financial plans for later life.
David Burrowes, Chairman of the Equity Release Council, comments:
“The equity release market is responding to consumer demand as it continues to evolve and grow. Increased product innovation and flexibilities are helping to meet wide range of financial and social needs, from providing extra retirement income to passing on wealth to younger generations.
“Older homeowners considering equity release have never before had more choice and flexibility to meet their changing needs and their families’, with average rates also at record lows. A broader range of products means equity release can play an important part of advisers’ toolkit when considering clients’ requirements in later life. It’s vital that advisers across a host of areas – including pensions and wealth management – can identify when equity release may or may not be suitable based on today’s product range and can refer a client for specialist advice where appropriate.
“The market’s development has been driven by competition, reinforced by robust consumer protections and product safeguards. As the UK’s ageing population continues to grow, making use of housing wealth will be essential to help all generations meet the financial challenges they’re facing both today and tomorrow.”
Kindly shared by Equity Release Council