June was the busiest month for new equity release plans agreed in Q2 2021, totalling 3,348. It was also the first month in more than a year to see more lump sum than drawdown plans agreed (1,726 versus 1,621).
Equity Release Council chairman David Burrowes put this rise down to June’s stamp duty deadline prompting “older homeowners to pass on a ‘living inheritance’ so that younger family members can climb the property ladder”.
This holiday was compounded by the last year’s house price gains, which Burrowes said “have given many homeowners more equity at their disposal”.
Advisers have also told FTAdviser they experienced an uptick in their equity release business as a direct result of the stamp duty holiday.
The holiday enabled first-time buyers to avoid stamp duty land tax on up to £500,000 of a house purchase between July 2020 and June 2021. On average, it saved individual buyers £15,000 and generated 140,000 “extra” transactions, according to a London School of Economics report.
Alan Lakey, director of CIExpert, said equity release made up 15 per cent of his business in 2020. But this year, it made up a larger 20 per cent. “Three or four years ago, it made up less than 10 per cent of my business,” he added.
Equity release lender more2life also published data last month which suggested 94 per cent of advisers were confident about the product’s outlook over the next year.
Whilst taking out an interest-only mortgage and footing a temporary shortfall in cash have long been two of the most popular reasons for equity release, Lakey said parents releasing equity to get their children on the property ladder was a fast-growing third reason.
“The stamp duty holiday sparked a herd instinct,” he explained. “People wanted to do it whilst they could make significant savings.”
IHT planning
Equity release is an option for over 55s. The amount of wealth unlocked in the second quarter of 2021 climbed 67 per cent year-on-year, by £698m.
Lakey’s equity release clients tend to be in their 60s with children in their 20s and early 30s.
“Doing equity release now reduces the inheritance tax risk,” he explained. “And parents can see their children benefit from their money whilst they’re still alive.”
Recent research by LV found IHT planning is becoming increasingly important. One in five (20 per cent) of the 65 and overs the insurer surveyed in June 2021 said they wanted to give money to their children and grandchildren in the next 12 months.
Claire Singleton, Legal & General’s home finance chief executive, said its data has shown a rise in the number of enquiries about gifting money to loved ones in the first five months of this year, compared to 2020
“[This] suggests older generations are increasingly being relied on as a vital source of financial support,” said Singleton.
Growing awareness
Stephen Lowe, group communications director at Just Group, said the uptick in equity release usage alongside the stamp duty holiday was “a good example of how modern equity release plans offer customers the flexibility they need”.
But a product like equity release comes with risks of its own. It inhibits a homeowner’s ability to move or downsize after equity is released. And it can impact means-tested benefits in older age, such as free glasses.
Awareness of equity release seems to be growing incrementally, with 20,270 new and returning customers releasing property wealth between April and June 2021, a rise from 16,527 in Q1 2021 and 13,617 in Q2 2020.
But more2life’s data found almost half (47 per cent) of advisers still consider a lack of consumer awareness about equity release one of the industry’s main obstacles.
Those working for residential mortgage firms with less than 30 advisers (67 per cent) and generalist IFAs (50 per cent) were most likely to hold this belief, suggesting more still needs to be done to educate over 55s on their options.
ruby.hinchliffe@ft.com
