Equity release: Expanding options fuel the growth story

Dean Mirfin looks at the reasons behind the record-breaking sales in the equity release market.

The records keep on being broken in the equity release market, as each update brings new highs for plan sales and lending.

Last year, the market hit £2.1bn after its fifth year of growth, which meant it had doubled in size since 2011.

The first three months of this year upped the pace of expansion with the highest recorded year on year increase in plan sales and total lending.

The numbers are impressive, with plan sales increasing by 58% to 8,604 and lending rising by 53% to £633m.

The whole of the UK saw strong growth, with the biggest increase in plan sales being in the South East of England at 88%. The biggest rise in lending was in the East Midlands where it increased by 89%.

During the first three months of the year, pensioner homeowners released more than £7m of property wealth a day, with the average customer taking £73,610 tax-free from their home.

Customers come in all shapes and sizes – their average age is 72, but 38% are aged 69 or younger. More than a fifth are single women, while 68% are couples. They own homes worth more than the national average at £322,400, rising to almost £600,000 in London.

Expanding on the figures

The figures are fascinating (if you like that sort of thing), but it’s the reasons why that stand out. Interest-only mortgage borrowers are major contributors to this growth. Key Retirement’s data shows about one in five equity release customers used cash to clear mortgage debt and that will continue to rise.

Some 10,000 borrowers a year between now and 2020 are coming to the end of interest-only loans and many will see equity release as a solution to their capital repayment deadline. Equity release enables them to stay in their home and not have to downsize, or even lose their house.

Mortgage lenders are engaging with equity release as a potential solution. One example is Santander, which refers customers with interest-only loans for equity release information and advice. We would urge others to follow.

Unfortunately, many lenders are not and more needs to be done.

Expanding the use

The key to the equity release market growth story is not just interest-only – it is property wealth growth and the fact the market is cutting rates, offering new solutions while advisers are providing support and expertise.

Customers are able to access life-changing amounts of money at reasonable rates which can help them address a wide range of issues. The average amount released at £73,000 makes a huge difference.

Most of the wealth is being used to fund home and garden improvements with 62% of customers releasing some or all of the cash to enhance their homes, while nearly a third (32%) use some of their wealth to fund holidays and 30% clear credit card and loan debt.

They are not just helping themselves, though – roughly 22% use some or all of the money to help family. That can include anything from funding house deposits to paying off student debts or just helping out with money in general.

Driving all of that is the rise in property wealth owned by over-65s who have paid off their mortgages to more than £1.072trn. Over-65 homeowners earn about £9,400 a year from their homes, according to our analysis, and have seen growth of 37% in the past seven years.

The long-term success story of property investment during a period of historically low interest rates and investment market volatility means pensioners who have paid off mortgages have been able to rely on tax-free returns from their homes, no matter what the short-term ups and downs have been.

That means equity release customers are now able to tackle a wide range of financial and lifestyle issues, providing vital support for retirement planning and keeping the records rising.

Dean Mirfin is technical director at Key Retirement