Equity release lending to UK homeowners over the age of 55 has reached its highest level since records began, largely driven by lending via drawdown lifetime mortgages, with industry experts stating that property wealth is becoming part and parcel of retirement planning.
Industry figures from the Equity Release Council showed equity release hit £384.3m in the second quarter, the largest amount for any quarter since records began, surpassing the previous high of £375.4m reached in the third quarter last year.
This uplift comes despite savers gaining greater access to their pension pots under the freedoms implemented on 6 April, with the industry body stating that as house prices are rising again there is growing appeal to using property wealth as an extra source of retirement income in later life.
Record lending meant the total value of equity released in the first six months of 2015 hit £710m; an 11 per cent increase on the first half of 2014.
There were 5,414 new equity release customers in the second quarter, also an 11 per cent increase on the last quarter; pushing the total number of new customers past 10,000 for the first six months of this year.
The value of lending via lump sum lifetime mortgages increased by 10 per cent year-on-year in the first half of 2015 to reach £285.3m.
However, this was eclipsed by the value of lending via drawdown lifetime mortgages, rising 12 per cent year-on-year from £379.2m in the first half of last year to £423.5m for the first six months of this year.
Nigel Waterson, chairman of the Equity Release Council, commented that there is no doubt the pension freedoms have created more options for people to consider, but the appeal of tapping into housing wealth is on the rise as older consumers seek to make use of all the assets at their disposal.
“Doom and gloom often surrounds discussions on retirement income, but while contributions to pension pots remain low, an entire generation of homeowners have been paying into property their whole lives: making it an asset that can transform their financial options beyond the age of 55.
“With the mainstream mortgage market grappling with issues of so-called age discrimination in the wake of the Mortgage Market Review, it is time to build bridges and encourage more focus on equity release as a source of finance in retirement.”
Alex Edmans, head of retirement at Saga, agreed that the MMR stopped many older people from accessing a traditional mortgage, so along with the fact that many people are now coming to the end of their interest-only mortgage term without a full repayment plan, has meant that more are turning to equity release.
The Financial Conduct Authority estimates that between 2017 and 2020 around 120,000 interest-only customers aged 65-plus will have to repay loans and are estimated to have loans-to-value of around 75 per cent - on an average house price of around £180,000 that implies a debt of £45,000.
Over the next 30 years, the FCA calculated that there are 2.6m interest-only mortgages due for repayment and 48 per cent of all borrowers are underestimating their shortfall.
Mr Edmans said: “Now is a good time to consider equity release, as interest rates are at their lowest ever levels, property prices are increasing and loan-to-values have recently increased, meaning people are able to access more of the wealth tied up in their property,” he added.
Simon Chalk, equity release expert at Age Partnership, believes that housing equity can help bridge the savings gap as people still are not saving enough to fund the lifestyle they want in retirement.
“Whether homeowners prefer to use an equity release product, or to sell-up and downsize, their house is often their biggest asset.
“There are now more products available allowing people to release some of this housing wealth, helping older homeowners enjoy their later life, or freeing them from the worries of scraping by on a meagre income.
Bernie Hickman, managing director of individual retirement at Legal and General, said the figures support the view that “retirement lending is an idea whose time has come”.
He said: “We expect pension freedoms to result in more and more homeowners taking a holistic view of their retirement assets, looking for both lump sums and regular income, rather than seeing property wealth as sacrosanct from their retirement funding plans.”
peter.walker@ft.com
