The equity release market is growing apace. Last month, the Equity Release Council (ERC) confirmed that lending hit an all-time annual high of £1.6bn in 2015. Yet there remains huge untapped potential.
Our latest research shows that this figure represents less than 1% of the potential size of the UK market, estimated at £360bn.
This is exciting news in itself, but more exciting still is the diversification of both where that potential lies and the reasons over 55s are giving for using equity release.
Housing wealth is growing more quickly outside the predictably buoyant South East, and retirees are increasingly accessing housing wealth to fund a more enjoyable lifestyle rather than just as an effective means to manage debt.
This diversification spells huge opportunity for advisers up and down the country.
The rapid rise in equity release’s popularity can in part be explained by the fact that, for the majority of retirees, their home is their most valuable asset, usually worth more than defined contribution (DC) pots or other investment portfolios.
For those who want to avoid downsizing, looking to the equity stored in their homes to finance a more enjoyable lifestyle can make perfect sense.
We always ask our equity release customers how they plan to use their loan. Recently, we’ve seen significant jumps in the numbers planning to treat themselves.
Compared to 2014, the second half of last year saw big increases in the percentage of customers citing holidays (15%, up 14 percentage points), cars (13%, up 12percentage points) and investment in new properties (15%, up 4 percentage points) as among reasons for accessing equity from their home.
We’ve also seen a big uplift in the numbers of people citing a desire to improve their homes as a reason for taking a loan.
In the second half of 2015, 43% of our customers referred to home improvements as a reason for using equity release, compared to 34% in the same period in 2014.
It was almost two years ago that former pensions minister Steve Webb famously raised the prospect of a surge in Lamborghini sales following the introduction of new freedoms in April 2015.
In fact, retirees have so far continued to approach DC pots sensibly, and increasingly recognise that a holistic approach to their assets is the key to a fulfilling and secure retirement.
As part of this recognition, attitudes to equity release are changing, with products increasingly becoming a proactive lifestyle choice for over 55s as part of broader financial planning.
And this shift is going hand-in-hand with a growth in market potential outside of the UK’s traditional property hotspots.
Our latest research finds that in the year to December 2015, East Anglia (up 16.7%) and the North (up 14.5%) both saw more substantial increases in property values than the South East (up 9.9%). Perhaps even more surprisingly, the greatest quarterly increase in house price growth was seen in the North, at 6.6%, compared to 3.5% in London.
Clearly, opportunity knocks for advisers across the country who recognise that this diversification of the where and why of equity release will be at the heart of the market’s rapid growth over the coming years.
Alice Watson is product and communications manager at Retirement Advantage Equity Release