Homeowners over the age of 55 withdrew a record £8.2m of housing wealth every working day from April to June as quarterly equity release lending surged past £0.5bn for the first time since records began, according to the latest industry data from the Equity Release Council.
The total of £514.4m of housing wealth unlocked during Q2 2016 was up 34% annually from £384.3m in Q2 2015, and 58% higher than two years ago when £325.6m was released in Q2 2014. Total lending for Q2 2016 surpassed the previous quarterly record of £452.6m in Q3 2015 by 14% (£61.7m).
It means that the three busiest quarters for equity release lending have all come within the last 12 months, as over-55s look in growing numbers to the wealth built up in their homes for a range of later life financial planning purposes.
Nigel Waterson, chairman of the Equity Release Council, said: “These figures are the latest sign that UK homeowners increasingly see housing wealth as a fundamental part of their retirement funding plans. The long-term rise of house prices has allowed many older homeowners to build up considerable reserves of housing equity, which have the potential to solve many of the financial challenges facing the UK’s ageing population.
“Growing demand from consumers since the recession has been met by a concerted effort from the sector to grow the range of available products and the reach of specialist advice. Looking ahead, this work will continue with an increasing focus on building relationships within the sector and with related markets such as residential mortgages and later life planning, so consumers can be referred for advice on equity release when it can help their circumstances.
“There is also an important role for government and regulators when it comes to financial education. As well as helping savers to understand the choices offered by the ‘pension freedoms’, it is just as important to help homeowners understand the options they have to put themselves on a stronger financial footing in later life.”
Common uses for equity release include paying off existing mortgages and loans, providing extra retirement income, funding home improvements or care related adaptations, paying for travel or other one-off expenses, and gifting money to family members as a ‘living inheritance’.
Over-55s increased appetite to use housing wealthy has been supported by market developments which include new providers and increasing choice of products and features emerging. In addition, the market received support from the regulator in April when they amended the legislation to allow optional interest repayments to be exempt from mortgage affordability rules.
Comparing year-on-year, The Council’s figures show the biggest percentage growth in the value of lending in Q2 2016 was for lump sum lifetime mortgages – typically involving a larger release of housing wealth in a single payment – with a 37% (£56.8m) increase from £152.1m in Q2 2015 to £208.8m.
However, lending via drawdown lifetime mortgages – allowing consumers to make multiple withdrawals of equity as and when needed – continued to account for the larger share of the market, growing 31% (£72.4m) from £231.6m in Q2 2015 to £304.0m in Q2 2016. This annual growth rate was the highest seen in four years since Q2 2012, during the UK’s recovery from recession.
Home reversion plans also experienced a rise in Q2 with the total value of activity more than doubling year-on-year from £623,647 in Q2 2015 to £1.5m in Q2 2016.
Looking at new customers’ product choices, more than two in three (a 67% share) opted for drawdown products in Q2, up from 65% a year earlier, while the share of lump sum products dipped slightly from 35% to 33%. With market activity having grown significantly during that time, the number of new drawdown plans agreed in Q2 was up 27% year-on-year compared with 16% for lump sum plans.
Overall, it meant the total volume of new plans agreed across the whole market in Q2 2016 was up 23% year-on-year: the highest annual growth rate in nearly 13 years since Q3 2003. The 6,671 new plans agreed was the largest quarterly total since Q4 2008.
Dean Mirfin, Key Retirement technical director, said: “The figures announced today echo Key’s Market Monitor results released last week in showing sustained growth, both in the levels of equity being released and also in the number of consumers looking towards their homes to provide a comfortable retirement.
“Quarterly lending passing the half billion mark for the first time on record shows a growing demand from those who increasingly view their homes as a fundamental part of their financial planning in later life. The increased level of lending is being met by developments in the wider marketplace, with new entrants emerging and a growth in the range of products and features, widening the appeal to those considering releasing their housing equity.
“We expect the growth trend to continue throughout 2016 and beyond as an increasing number of people recognise the important role property can, and does, play in meeting the challenges of financing their retirement.”