Equity Release  

Retirees ready to release the pounds

  • Understand the reasons behind the growth in equity release
  • Learn about how equity release can benefit clients
  • Gain an understanding of the relationship between equity release and pensions
Retirees ready to release the pounds

Not every niche pursuit becomes widespread, but the surging growth of the equity release market suggests it is fast becoming a go-to option for many homeowners.

After a rapid rise in the amount of housing equity being withdrawn in the past 12 months, in particular, equity release is now a £3bn-a-year industry. This still represents less than half of the £6.5bn withdrawn from pensions using freedoms during the same period, but it is the direction of travel that catches the eye.

Many remain concerned about the implications of such practices. But one other barrier to growth – a lack of household names getting involved in the market – is starting to lower.

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In mid-November 2017, Nationwide announced it would be launching a lifetime mortgage product, claiming to be “the only major, high street mortgage lender to offer a product of this kind in the equity release market”.

The building society added that the move was part of an ongoing plan to address “the needs of a changing and ageing population, and to support people in or approaching retirement”.

David Burrowes, chairman of the Equity Release Council, believes this provides evidence of the sector creeping into the mainstream, adding that other big names are also looking to take a piece of the pie.

“We are always keen to say that it’s not going to suit everyone, but it’s one of the options that must be in the toolbox,” he says.

“We’re seeing partnerships evolving as well. Santander and others are working alongside those [equity release] specialists in the distribution of these products – they work hand-in-hand with them.”

One persistent obstacle remains the intermediary community, many of whom continue to steer clear. Other challenges such as changing regulation remain unresolved, all of which poses the question: if equity release is on the cusp of becoming mainstream, is the industry in a suitable state for such a development?

Boom time

In a review of the equity release market in 2017, provider Key Retirement found lending had surged by 40 per cent from 2016’s figure of £2.2bn – the biggest annual rise in the past five years, following growth of 26 per cent in 2016 (see Chart 1). Since 2013, the amount of equity released annually has tripled, and lifetime mortgages have taken a larger share of the UK mortgage market (see Table 1).

Table 1: Ratio of new mortgage customers to new lifetime mortgage customers

First-time buyers121210
BTL purchases742
BTL remortgages634

Source: Equity Release Council/UK Finance. Copyright: Money Management

Rather than simply a result of larger plans being taken out, a key element of the recent increase has been a sharp rise in the number of overall plans. A total of 38,955 plans compares with the 27,666 taken out in 2016. In contrast, the average loan amount has fallen, albeit only marginally, from £77,877 to £77,380. There are a number of likely factors behind this growth. Worryingly, the need for older people to borrow is likely to become more prominent as longevity increases.