Equity Release  

Equity release lending drops by a quarter in London

Equity release lending drops by a quarter in London

The number of equity release plans completed in London has dropped by nearly a quarter as the capital’s house prices continue to slide.

London saw completions fall by 23.5 per cent in October compared to the previous month, according to provider Responsible Equity Release (RER).

The decline follows reports of a drop in house prices in the capital, with the Office for National Statistics recently revealing they fell by 0.2 per cent in September.

Article continues after advert

RER predicted there would be some resistance to releasing equity while prices are falling, even though equity release plans generally come with a ‘no negative equity’ guarantee.

This guarantee ensures that the amount to be paid back by a client can never be higher than the value of the home on which the loan was secured, even if the actual value of the home falls.

Tracey Lucas, equity release adviser at Suffolk-based Needham Mortgage Centre, said she thought providers would continue to provide the guarantee even if house prices carry on falling.

She said: “We can only go by what has gone on in the last 50 years, and it [the trend for falling house prices] has never been prolonged. When providers go on how much they will lend to people, the only thing would be to reduce the amount people can borrow – and that would have to be in pretty extreme circumstances.”

Ms Lucas pointed out that equity release plans are underwritten based on the client’s life expectancy, and this already factors in house price falls or rises of up to 1 per cent a year over the term of the loan.

She added: “If house prices go down and it becomes a trend, then I imagine providers would just lend slightly less - and the reasons for releasing equity would still be there. I don’t see it damaging the market particularly.”

Apart from London and Belfast, which also saw a drop in completions, equity release continued to break records elsewhere in the UK.

Completed equity plans were up by almost a fifth (19.2 per cent) on September and climbed by more than three-quarters (76.5 per cent) on the corresponding month in 2016.

The total amount of equity released in October was up 3.8 per cent on September and more than double (111.9 per cent) the amount released in October 2016.

But the average amount of equity released by individual homeowners dropped from a high of £84,057 in September to just under £71,000 in October.

RER managing director Steve Wilkie said the Bank of England’s decision to raise the base rate to 0.5 per cent would not provide a significant boost for UK pensioners unless it was followed by further rises over the next few years.

He added: “It leaves pensioners in the same financial predicament. They have endured a decade of dire savings growth, and with inflation likely to rise beyond three percent, many are struggling to cope with escalating living costs.
 
“If investments and savings aren’t providing income, what are their options? For many, it’s their home - the only asset they have which they can generate an income stream from - and it’s no surprise to see the popularity of equity release grow as a result.”