Equity release market hits record lending as it nudges £4bn barrier

25-Jan-19
Rue Irving

Older homeowners unlocked a record £3.94bn of property wealth using equity release during 2018 – just failing to break through the £4bn barrier for the first time.

The total was 29% up on the £3.06bn in 2017 and the seventh consecutive year of growth in the market as recorded by the Equity Release Council (ERC).

Meanwhile the £1.08bn of lending completed in the final three months was up 26% from the £838m in the same period last year.

This continued the market’s growth from the £1.02bn lent in Q3 2018 which was the first time the market broke £1bn for a quarter.

Of the 82,791 customers who accessed equity from their homes during 2018, more than 46,000 were new customers, including nearly 13,000 in the final quarter.

The ERC said a busy end to the year saw 12,891 new equity release plans agreed between October and December, contributing to an annual total of 46,397 – both new highs and increases of 25% year-on-year.

Equity Release Council chairman David Burrowes (pictured) said the figures showed sustained growth and that equity release now played a pivotal social role.

“Older homeowners are realising in growing numbers that property wealth can play a crucial role in supporting their retirement alongside pensions, savings and other assets,” he said.

“Industry, regulators and government must continue to explore how we can help generations of retirees, both today and in the future, to adopt a more rounded approach to later life planning.

“With a growing choice of products and features on offer, the market is maturing and adapting to offer a new level of flexibility to suit a range of financial needs and ambitions – from funding care costs to helping children to buy their first home.”

Variety of reasons

Will Hale, CEO at adviser firm Key said the figures were a significant step forwards considering five years ago the industry was delighted to have broken the £1bn barrier.

He believes a variety of factors were driving the market with the firm’s analysis suggesting that equity release is appealing to an ever more diverse profile of customers.

“This is evidenced by the fact that increasingly customers are choosing to gift some of the equity they take out,” he said.

“Indeed, in 2018, we saw an increase to just over one in four choosing to use their housing equity to help friends and family.”

He added: “All signs are pointing towards a successful 2019 for the market.”

Similar values

The ERC noted that while further growth was expected to help meet social needs, the average amounts withdrawn by homeowners remained steady.

During Q4 2018, the average first instalment of a drawdown lifetime mortgage was £63,530, compared to £62,359 a year earlier – equivalent to seven and a half years of state pension support.

The average lump sum lifetime mortgage in Q4 was £96,515, down from £101,913 in Q4 2017 and equivalent to more than 11 years of state pension support.

Drawdown products were chosen by 65% of new customers during Q4 while 35% opted for lump sum products.

The 46,397 new plans agreed in 2018 through ERC members were more than double the 22,749 seen three years ago in 2015, and four times the 11,484 seen over the course of the 1990s when consumer-focused industry standards were first established.

Market evolution

Canada Life Home Finance head of marketing and communications Alice Watson said the seven straight years of growth was evidence of the market’s evolution, with the sector almost doubling in size to £4bn in just two years.

“These are historic figures for the equity release market,” she said.

“If the industry continues to work together to meet evolving needs, customers and advisers will continue to act as the engine for growth.”

More 2 Life CEO Dave Harris also welcomed the figures and noted that the firm had seen application volumes reaching more than £1bn in 2018, with completion volumes up by almost 80% compared to 2017.