Housing equity release growing in proportion to flexible pension payments in UK
Equity release is attracting twice as many new customers in the UK as five years ago and the range of equity release product options has grown 25% year on year as rates continue to fall, the latest analysis shows. Indeed, record equity release lending of £3.06 billion in 2017 saw housing wealth withdrawals gain ground on flexible pension payments as a source of retirement finance, according to the Equity Release Council’s Spring 2018 Market Report. The report highlights growing interest in the equity release market from consumers, as more homeowners consider housing wealth among their later life funding options and find an increasingly flexible range of products enabling them to unlock some of its value. In the second quarter of 2016 just 29 pence of housing wealth was unlocked by over 55s for every £1 of savings accessed via flexible pension payments following the introduction of pension freedoms a year earlier. By the fourth quarter of 2016 this had increased to 43 pence and reached 56 pence by the end of 2017. The report points out that overall property is becoming increasingly important as a supplementary source of retirement finance. Housing wealth withdrawals grew 34% from the second half of 2016 to the same period in 2017. In comparison, flexible pension payments remained flat in the second half of 2017 and actually fell 4% year on year in the fourth quarter of 2017. The report also shows that growth in lifetime mortgage customer numbers outpaced other areas of the mortgage market in 2017 for a second successive year. The rise in lifetime mortgage activity has gathered pace with 2016’s increase of 22% in new customers followed by a 34% increase in 2017. For comparison, annual growth in remortgage numbers dropped from 14% in 2016 to 12%; the first time buyer recovery saw numbers grow 8% year on year for a second year; and the market for home movers returned to growth in 2017 with numbers up 5% from 2016. The continuing progress of equity release towards the mainstream of financial services also meant the ratio of new mortgage customers to new lifetime mortgage customers continued to reduce in 2017. Ten years ago, there were 88 first time buyers, remortgagers, home movers and new or remortgaging buy-to-let borrowers in the market for every new lifetime mortgage customer. That number fell to 56 in 2012 and has since fallen again to 38 in 2017. The comparison shows that encountering consumers with a potential interest or need for lifetime mortgages is becoming an increasingly common experience for advisers. It therefore emphasises the importance of accessible advice, robust standards and clear signposting between related areas of financial services to support consumers’ decision-making. Along with increased demand there has been a rise in the range of product options, up 25% year on year as there is now greater competition from providers. This is reflected by the amount of product options available to consumers, which grew from 69 in January 2017 to 86 in January 2018. This increase of 25% in the last 12 months alone illustrates the sustained increase in choice and flexibility, the report says. And it adds that competition has driven greater innovation in the market. Some 70% of product options now offer consumers the choice to make ad-hoc, penalty free voluntary or partial repayments of their loan, to minimise the build-up of interest and even reduce the loan over time. Competitive pricing for equity release products is also driving growth in the sector. Despite the Bank of England base rate rising from 0.25% to 0.5% in November 2017 average product rates fell by 0.23% over the 12 months from January 2017 to 5.14% in January 2018, at a time when many other personal borrowing products have increased in price. Overall, the volume of new customers taking out equity release plans in 2017 was almost 10,000 more than in the previous year, as the number of people unlocking housing wealth for the first time increased by a third. More new equity release plans were agreed in the second half of 2017 than in the whole of 2012. As a source of retirement finance, equity release is now helping more than twice as many new customers as it was five years ago. ‘The Council’s aim is for consumers to see equity release as a safe, mainstream and accessible financial solution to their needs in later life and retirement plans. With record levels of market growth and more flexible product options than ever before, using housing wealth to boost retirement income is becoming firmly established as a viable and compelling solution to consumer funding needs,’ said David Burrowes, chairman of the Equity Release Council. ‘Looking forward, we expect the need for new sources of income in retirement will continue to grow as many people will be unable to rely on pressured pension pots. It is vital more people understand its possibilities not only to provide income in later life or pay off debts, but also to provide a living inheritance for family members and help fund care needs,’ he pointed out. ‘Helping young people get on the housing ladder and paying for social care are at the top of the political agenda, and we look forward to strongly advocating for the role equity release can play in helping to meet these policy challenges,’ he added.
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