The mortgage market review has caused lenders to tighten the screws on older people applying for mortgages, Nigel Waterson, chairman of the Equity Release Council, has claimed.
He added: “Equity release can help bridge the funding gap, and the months ahead will see discussions and innovations aimed at bringing it to a wider audience.”
His comments came after the ERC unveiled its analysis of data from the Office for National Statistics and more than 90 per cent of new plans taken out in the first half of 2014.
The data showed customers’ initial equity withdrawals averaged £40,467 in the first half of this year, excluding London.
This cash injection amounts to 18 months of post-tax retirement income for pensioner couples, taking benefits, pensions, investments, earnings and other income into account. For single pensioners, the extra funds unlocked add up to almost three years of net retirement income.
The ONS data shows the average female life expectancy beyond 65 is 86, meaning the typical equity release customer, aged 70, might expect to hold their loan for 16 years.
Releasing £63,741 at an interest rate of 6.39 per cent from a property worth £271,293 would leave £207,552 of equity in the home at the outset.
Mr Waterson said that, even with below-average house price growth of 2 per cent a year, it is not until year 14 that the remaining equity dips below £207,552 once the loan and interest are deducted. By year 16, 2 per cent house price growth would leave £200,703 of equity after repaying the loan and interest – which is more than 96 per cent of the original sum.
House price growth needed to preserve remaining equity | |
16-year growth needed to preserve a sum of £207,522 | 40% |
16-year growth needed to grow £207,522 in line with 2% inflation | 68% |
Average 16-year growth | 260%+ |
Lowest 16-year growth | 112% |
Source: ONS/Halifax/Nationwide
Adviser view
Simon Chalk, technical manager for equity release at Age Partnership, said a modest and perfectly reasonable assumption on house price inflation could be made in order to help provide what customers need today, “but keeping some powder dry for tomorrow”.
