Older homeowners boost equity release sales

Almost 60% of new equity release contracts started in the first of the year were taken out by older homeowners, official industry statistics reveal. Jenna Towler reports

Homeowners aged between 65 and 74 are increasingly using equity release to supplement their income in later life, figures from the Equity Release Council’s (ERC) market report have shown.

Data for the first half of the year showed 58% of new equity release contracts sold were taken out by older homeowners.

Total lending was up 11% to £710m. It stood at £641m in the first half of last year.

A quarter of new plans sold during H1 were bought by over 75s, with 22% aged between 75 and 84. Over 85s accounted for 3%.

Customers aged 55 to 64 accounted for 18% of new plans, down from 20% in the second half of last year.

Drawdown lifetime mortgages are the favoured method of equity release.

The ERC said these accounted for 65% of new plans agreed in the first half of this year, compared with 44% during the equivalent period of 2007 when drawdown products were relatively new.

Some 35% of new plans in H1 2015 were lump sum mortgages, compared with 51% in H1 2007.

It said drawdown products are taken out between the age of 71 and 72 on average.

ERC explained: “These allow people to dip into their housing wealth as and when they need it, which can provide an extra source of income and limits the overall cost of the loan as interest is only applied once funds are withdrawn”.

These products typically see customers opting for smaller initial withdrawals of housing wealth, averaging £46,958 in the first half of the year.

This was down by 2% (£872) on last year despite the average customer’s house price rising 7% over the same period (from £283,836 to £304,340).

Drawdown Lump sum
House price £304,340 £242,476
Initial withdrawal £46,958 (15.4%) £77,494
Drawdown reserves £32,348 (10.6%) NA
Loan-to-value (LTV) 26.1% 32.0%
Average age at purchse 71.5 67.7


ERC said in contrast clients looking for a lump sum are closer to the old default retirement age of 65. Their average has dropped to 67.7 with an average withdrawal of £77,494.

Average age of customers for new plans agreed
H1 2015 70.1 67.7 71.5
H2 2014 70.3 67.6 71.6
H1 2014 70.8 68.8 71.6


The figures come after the Financial Conduct Authority said it was considering its regulation of the equity release market amid concerns a “dirty word” reputation has led to an under-functioning market.

Equity Release Council chairman Nigel Waterson said: “The retirement landscape has changed considerably in the last year alone, but it remains a challenge for many people to save enough to support the lifestyle they aspire to.

“Appetite for using housing wealth as a source of funding in later life continues to grow, and equity release is playing an increasing role in helping people – especially those who are asset-rich and cash poor – enjoy a better quality of life beyond the age of 55.”

He added: “As demand grows, it is vital that efforts are made to continue to uphold rigorous standards of financial and legal advice across the industry.

“Along with product protections, these are fundamental to ensuring consumer confidence and positive outcomes.

“With drawdown products having emerged as the majority preference, more recent innovations mean customers can opt for products that protect a minimum inheritance or enable monthly interest payments to begin with.

“The prospect of more new providers and different funding options emerging will build on this and help the market to satisfy wider demand.

“Equity release has been transformed since the 1980s, and we are committed to continuing this process – as well as growing awareness of the products, how they work and the role they can play in helping people to plan their finances in later life.”

Partnership head of implementation Helen Davies commented: “The first six months of 2015 were an interesting period for the retirement market given the introduction of pensions freedom.

“While some pundits believed that there might have been a surge in equity release – while people waited to access their pensions – today’s report suggests that this has not happened and we are instead seeing steady sustainable growth.”

She added: “Indeed, the rise in the number of 65 to 74 year olds using this product to improve their standard of living in retirement – an older cohort than might logically access the new freedoms – bears testament to a generation looking to their homes for financial support.

“There is also a clear delineation between lump sum and drawdown customers which shows the versatility of these products.

“With the promise of new providers bringing different products, it will be interesting to see how the market develops.”

Long-term planning

Retirement Advantage product and communications manager Alice Watson said the market was experiencing strong growth a “shifting” customer base.

“The average equity release customer is getting older, and their property values are increasing.

“Part of this growth is driven by demographic and economic trends, but much of it is also the result of more flexible products and more responsive providers, making equity release a more attractive option for a wider range of people.”

She added her firm’s experience in the first half of the year saw customers with average house prices higher than the ERC’s figures, but lower initial withdrawals and far more being left in drawdown reserves.

“This points to a change in the way people are using equity release. It’s now part of their long-term planning, with customers looking at their retirement income holistically, drawing from different pots of savings and wealth to live the life they want to lead.

“The market has been responding to these changing attitudes with innovative, flexible products, and that’s reflected in the results we’ve seen.

“If we as an industry can keep up the pace of development, continuing to listen to advisers and customers and continue to deliver innovative, flexible products, there’s no reason why equity release cannot further cement itself as a source of retirement income.”