Mortgages  

Pension freedoms push equity release to record

Pension freedoms push equity release to record

New pension freedoms have increased the appeal of equity release, with statistics from the Equity Release Council showing that total lending in the first quarter of this year grew 3 per cent to set the largest first quarter lending total on record.

The council’s statistics, published today (24 April), revealed that total Q1 equity release lending hit £325.7m. Compared to the final quarter of 2014 there was a 13 per cent drop in lending from £365.7m to £325.7m.

The average value of equity release lending per customer was £66,747 in the first quarter, 4 per cent higher than Q4 2014 and 1 per cent higher than Q1 2014.

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It is the highest value recorded for the first quarter of the year, despite low inflation and an ease in the cost of living, which the council believes is a sign that households are still struggling with their finances.

The most popular loan option for homeowners remained drawdown income, for which market share increased slightly year-on-year. The value of drawdown products was 59 per cent of lending in the quarter and the volume was 65 per cent, both up 1 per cent from Q1 2014.

The value of lump sum mortgages accounted for 41 per cent of the total lending in the quarter. The value of home reversion plans sold remains less than 1 per cent of the market.

Nigel Waterson, Equity Release Council chairman, said the new pension reforms have brought the topic of financial planning for retirement firmly to the fore and “we hope this encourages people to seek financial advice to discuss the many options available to them, of which equity release is one”.

“We believe that understanding of equity release has improved significantly over the last year and that equity release is now firmly established as a mainstream form of borrowing,” he added, arguing that this is especially true as older borrowers are turned away for standard mortgages.

“I predict increased consumer demand and product innovation from providers over the coming year.”

Helen Davies, head of implementation at Partnership, added: “With the advent of pension freedoms an increasing number of people are being encouraged to take a more holistic view of their pension finances, something that can only be good news for the equity release industry.”

Chris Prior, manager for sales and distribution at Bridgewater Equity Release, added that these products are likely to grow in popularity throughout 2015 and beyond.

“Issues such as the ‘interest-only time bomb’, the pull-back on lending into retirement, the need for retirees to fund a growing number of financial responsibilities in retirement such as the provision of care, and consumers’ interest in supplementing their income levels, are ongoing.

“Therefore, our anticipation is that 2015 will move forward as it has begun which means continued increases in both equity release interest and activity,” he concluded.

peter.walker@ft.com