MortgagesMay 11 2016

Interest-only borrowers surge into equity release lump sums

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Interest-only borrowers surge into equity release lump sums

Looming interest-only mortgage due dates have driven a surge in sales of lump sum equity release plans, according to Key Retirement’s first quarter figures.

Sales jumped to 40 per cent of the market, up from 30 per cent a year earlier. Key Retirement attributed the rise to customer demand for the maximum cash available, rather than drawdown, to use the lump sum to pay off shortfalls in interest-only mortgages.

Dean Mirfin, technical director at Key Retirement said: “It’s long been predicted that as the first large wave of interest only mortgages maturities begins more customers will turn to equity release to plug this gap.”

Equity Release Council chairman Nigel Waterson pointed out their analysis found borrowers aged 55-64 have been leaning towards lump sum products, while older borrowers favour drawdown arrangements.

The Market Monitor, which analyses data for ERC members and non-members, showed total property wealth released rising to nearly £415m, up 22 per cent from £341m last year. The average loan amount also rose £66,734 for the first quarter of 2015, to £76,115 in the last three months.

Around 29 per cent of customers used some or all of the money to pay off unsecured borrowing, primarily credit card debt or loans, although 21 per cent used some or all of their money to clear outstanding mortgages.

Sales of equity release plans for the quarter were 5,447 - up 7 per cent from 5,110 for the same period of 2015.

Drawdown remains the most popular type of plan, accounting for 60 per cent of all new plans and providing potential further borrowing of £126m, in addition to the £415m in initial advances. This means a a total market for the quarter of £541m, compared to £487m for the same period last year.

On a regional basis, the greatest increases in plan numbers were experienced in Wales (+41 per cent) and East Anglia (+29 per cent).

Top region for overall lending was the south east (£114m), with London (£87m) taking second place. The largest drop, for both plan numbers and overall lending, was experienced in the north east, falling 35 and 29 per cent respectively.

TOTAL VALUE OF EQUITY RELEASED ACROSS THE COUNTRY

 

Region

Number of plans sold Q1 2016

Number of plans sold Q1 2015

Total value released Q1 2016  (£ million)

Total value released Q1 2015  (£ million)

South East

1,291

1,211

£114.573

£97.011

London

657

616

£87.521

£70.411

South West

654

646

£49.902

£40.285

North West

518

442

£29.764

£20.067

East Anglia

376

291

£25.127

£13.94

East Midlands

390

391

£21.152

£17.714

West Midlands

379

348

£21.497

£20.645

Scotland

365

355

£21.298

£17.68

Yorks & H’side

376

421

£20.363

£19.903

Wales

250

177

£12.885

£8.944

North

146

224

£8.252

£11.65

Northern Ireland

45

37

£2.291

£2.734

UK

5,447

5,110

£414.631

£340.991

The average amount released to boost retirement income increased 12 per cent to £76,115 in the first quarter, while in London the average released was nearly £134,350 - up from £129,991.

Steve Wilkie, managing director at Responsible Equity Release, said rising property prices have been a contributory factor, particularly in London, where house prices have hit record levels.

“Products such as interest-only lifetime mortgages, flexible repayment, downsizing protection and inheritance guarantee, are attracting a whole new market to the benefits of equity release,” he added.

peter.walker@ft.com