Lump sum lifetime mortgages have now overtaken drawdown mortgages for the first time in 13 years as the equity release market continues to grow, according to the Equity Release Council.
Figures revealed that there has been £1.6bn of property wealth withdrawn in Q2 2022, which includes 12,485 new equity release plans, equivalent to 205 plans being agreed each working day.
There has been increase of 26 per cent year-on-year in equity release plans, although this still remains below the peak of 12,891 new plans recorded in Q4 2018.
A total of 23,910 new and returning customers withdrew wealth from their properties between April and June 2022, up 515 (2 per cent) from 23,395 in Q1 2022.
The Equity Release Council’s chair, David Burrowes said the latest figures represent “significant progress from the days when the market was considered an under-developed niche rather than the mainstream option it has become".
New plan sizes largely remained stable at around £135,000 while returning drawdown customers typically withdrew £13,506 each.
Lump sum lifetime mortgages on the up
For the first time in 13 years, since Q1 2009, more new customers opted for lump sum lifetime mortgages over drawdown lifetime mortgages, increasing from 45 per cent of new plans in Q2 2021 to 54 per cent now.
In Burrowes view, this is likely influenced by customers’ continued desire to gift money to younger family members and share their property wealth across generations, particularly due to cost-of-living pressures.
Knight Frank’s head of later life finance, David Forsdyke agreed with this assessment and said it is being driven by wealthy homeowners using equity release as an “effective and efficient” way to redistribute their wealth or as an “essential” part of their inheritance tax planning.
Forsdyke said a second driving factor of equity release, particularly in London, has been homeowners remortgaging or restructuring their finances so they can stay in their homes.
“Many have interest only mortgages, and as their mortgage reaches the end of its term they need a longer term solution that allows them to stay. With interest rates rising our advice is to act sooner rather than later,” he said.
This chimes with Key Later Life Finance’s market monitor which found that 40 per cent of equity release customers used some or all of their funds to repay an outstanding mortgage.
Key’s chief executive, Will Hale said a lifetime mortgage can be an excellent option for an older borrower who is either unable to remortgage to a mainstream product or is facing a shortfall at the end of their interest-only mortgage term.
Burrowes added that raising awareness of how modern equity release products work alongside other financial solutions is “essential so people who are asset-rich but cash-poor can benefit from the wealth they have built up over their lifetimes and also support those around them".
In agreement with this was Canada Life’s head of marketing, insurance, Alice Watson who said that it “highlights the real-world applications of how property wealth can be used flexibly and effectively.”
Penalty free repayments
In March, the Equity Release Council introduced its fifth product standard which meant all plans in Q2 came with the option for customers to make penalty-free partial repayments, allowing them to reduce their future interest costs with no requirement to make ongoing repayments.
Burrowes said this meant customers reduced their future interest costs by tens of millions of pounds.
“The flexibility to make voluntary repayments, with no risk of repossession, is likely to be important to a growing number of people as they look to balance their books.
“The reality that interest rates have risen from historic lows will also impact people’s plans and the Council will monitor this closely as the year progresses. Today’s product range leaves a number of avenues open for customers to limit their overall borrowing costs," Burrowes said.
Plans becoming more customisable
May was the busiest month of the quarter for new customer activity, with 4,436 new plans agreed.
Retirement specialist Just Group’s communications director, Stephen Lowe said equity release is becoming a keystone of financial planning for some customers alongside their pensions and other savings.
“Demand for equity release has recovered strongly from the pandemic wobbles with the last three quarters each setting new lending records.
“The business drivers continue to be very strong and providers are competing hard for business with extra features such as interest-servicing and medically underwritten rates. Locking into today’s interest rates – still near historic lows – is also appealing. It’s likely some demand is from people who put plans on hold during lockdown, alongside those starting to feel a squeeze from rising household costs,” Lowe said.
Equity release advisory firm, HUB Financial Solutions’s managing director, Simon Gray described today’s figures as “by far the strongest first half figures ever seen” and said they bode well for the rest of the year and beyond.
In Gray’s opinion, the Equity Release Council’s new product standard allowing penalty-free partial repayments and competitive interest rates are underpinning the growth.
“The result is that the plans are becoming more customisable for different situations and this means professional advisers can personalise solutions for each unique client.”
jane.matthews@ft.com
