Equity release lending up 28% year-on-year

Carmen Reichman writes

Equity release lending was up 28% in the first half of the year, in what marked its highest growth in a decade, according to latest figures from the Equity Release Council.

Council members lent a total of £908m to consumers in the period, up £198m from the £710m business transacted in between January and June last year.

The majority (two-thirds) of clients opted for drawdown lifetime mortgages – a similar figure to the previous five years. A total of 7,917 drawdown plans were agreed, which represented the largest number in any first-half period on record, the Council said.

The autumn Equity Release Market Report also showed a dip in the pricing of the products, with average lifetime mortgage rates falling 24 basis points, reaching 5.96% in July.

The Council’s chairman Nigel Waterson (pictured) said: “Growth is being driven by a combination of rising consumer demand and continuing signs of innovation and change in the market.

“In terms of demand, savings shortfalls and other financial challenges leave many over-55s looking for an extra source of income in later life, while housing wealth also offers a vehicle for intergenerational transfer of wealth and inheritance planning.”

The Financial Conduct Authority (FCA) has previously said it was keen to create better consumer access to the market, having identified unlocking the value of a home as a potential remedy for affordability issues in retirement.

Specialist qualification

Advisers wishing to work with the products need a specialist qualification, which is currently linked to the mortgage authorisation.

However, the FCA proposed to overhaul adviser equity release qualifications in September to encourage more advisers to enter the market. It suggested creating a stand-alone qualification or to link it to pensions or investments as opposed to mortgages.

For her part, Bower Retirement Services chief corporate officer Andrea Rozario warned the overhaul would not solve the industry’s problem of ad hoc advice, which, she said, was the biggest risk to the industry.

The Equity Release Council suggested, based on current growth levels, the market could reach lending levels of between £1.93bn and £2.05bn for the whole of 2016.

Equity release has historically been more popular with older people – typically those aged between 65 and 74. However, the Council said it had observed increasing demand from those at the cusp of retirement, with the percentage of new customers aged 55-64 increasing from 17.5% to 21.2%, in the first half of the year.

“This may be a sign that people are starting to look at housing wealth as a potential asset earlier in the retirement planning process, and that more find themselves with existing borrowing – including interest-only mortgages – to pay off as they move into later life,” it said.

However, customers in the younger age bracket continue to be outnumbered by those aged 75-plus, it added.

Key Retirement technical director Dean Mirfin said: “The 10-year high for equity release market growth highlights how the combination of record low rates for plans and house price growth is making the case for property wealth increasingly supporting retirement planning.

“Retired homeowners have more than £1 trillion of property wealth owned outright with the over-65s seeing strong growth from their investment in their house so it makes perfect sense to capitalise on that, tax-free, to enhance their retirement standard of living.”