Two-tier market emerging in equity release sector, new figures suggests
A total of £1.85 billion in housing wealth was unlocked in the first six months of 2019, in line with the same period last year but a two-tier market in equity release has emerged, the latest figures show.
In the second quarter of 2019 as sales of new drawdown mortgages grew while take-up of new lump sum mortgages mirrored the first quarter of 2018, according to the figures from the Equity Release Council, the UK sector trade body.
Some 7,227 new drawdown lifetime mortgages were taken out in the second quarter by older homeowners seeking to release cash from their properties. This total was up 5% from the first quarter of 2019 and 2% from the second quarter of 2018.
The figures reveal that more than two thirds, some 67%, of new plans taken out between April and June were drawdown, the highest share seen since the fourth quarter of 2017. In comparison, 3,502 new lump sum lifetime mortgages were taken out, higher than any quarter prior to the second quarter of 2018 despite being the lowest quarterly total seen over the last year.
The industry data highlights the average size of new drawdown plans was consistent with the previous quarter in terms of customers’ first withdrawal at £63,166 versus £62,416 in the first quarter, although customers reserved more modest amounts of housing wealth for future use at £35,903 compared to £37,069.
The average size of a new lump sum plan taken out in the second quarter was also scaled back slightly to £93,712, a drop of 4% quarter on quarter. Overall in the second quarter total clients served rose by 2% over the quarter to 20,866 and were up 3% year on year.
Although the number of new customers was down 1% on the first quarter to 10,731, the number of returning drawdown customers increased 7% to 9,154 over the same period, driven by more existing customers having these products.
Total lending between April and June fell 3% compared to the second quarter of 2018, down to £911.3 million and down 6% year on year.
David Burrowes, chairman of the Equity Release Council, said:
‘The number of people drawing on housing wealth in later life remains high by historic standards and remains an important mainstream funding option for many, despite short-term activity inevitably showing signs of the uncertainty that has impacted other areas of the economy in the current political climate.
‘The long-term trend of an ageing population with more individual responsibility for funding retirement and lifestyle needs in later life is unchanged. The emergence of drawdown as the most common product choice shows how innovation has given customers more flexible options to build their plans around.
‘Older homeowners are recognising the benefits of including their property wealth as part of their later life financial plans. Indeed, our research shows that more than 50% of people aged 45 plus already do so. This data highlights the considered approach that customers take when accessing their property wealth. We will continue to see bricks and mortar play an important role alongside pensions, savings and other assets.’
According to Dave Harris, chief executive officer of equity release lender more 2 life, while the figures suggest that the equity release market’s significant growth in recent years may be slowing down, there is a continued appetite for equity release among older home owners as they look to unlock the wealth tied up in their homes.
Dave Harris said:
‘Drawdown lifetime mortgages, which allows people to reserve an amount and then take it in tranches, has proven to be particularly popular this past quarter as customers focus on meeting clearly defined needs. Looking to the future, we believe that it is vital for lenders in this sector to innovate and add more product choice in this area in order provide the flexibility that customers’ desire.
‘Advisers also have a huge role to play in the expansion of the equity release industry and we need more advisers to take CeMAP or at least keep abreast of the latest industry trends to ensure borrowers are aware of all the options available to them as they navigate the later life lending market.
‘The current uncertain political and economic climate has contributed to the slowdown in equity release growth in the past three months, but an ageing population and shrinking pension pots will ensure that equity release remains an increasingly popular lending option in the future.’
Kindly shared by Property Wire