Average rates for equity release products reached record lows of 4.11% in July 2020, with more than half of products offering a rate of 4% or lower, and a fifth offering rates below 3%, according to data from the Equity Release Council (ERC).
Equity release rates fell further than other personal borrowing products – mortgages, personal loans, credit cards and overdrafts – over both a one and two-year period.
Product choice for consumers was up 29% from July 2019, and by 88% since the start of 2019, despite a 5% reduction in product numbers from 401 to 379 between January and July 2020.
Due to the impact of COVID-19, the first half of 2020 saw an overall 14% drop in customer activity from the same period last year, and a 15% drop in new plans agreed.
Q1 saw 11,079 new plans agreed and 21,884 total customers served, falling to 7,341 and 13,617 respectively in Q2.
The report also found that 37p of property wealth was unlocked for every £1 of flexible pension payments in H1 2020.
Products priced above 6%, which made up a quarter (25%) of options on the market in January 2019, accounted for only 3% of available plans in July 2020.
More than half (55%) of products allowed downsizing protection, a third (35%) enabled customers to make full or partial interest repayments, and over half (56%) allowed repayments on the loan without incurring an early repayment charge.
Jointly held plans continued to make up the majority of new customer activity in July 2020: 58% of new drawdown plans and 59% of new lump sum plans in H1.
The percentage of new drawdown plans taken out by women rose from 27% in H1 2019 to 29% in H1 2020.
Average house prices rose for both new drawdown (£378,749) and lump sum (£346,157) lifetime mortgage customers, both above the UK average of £234,612 – keeping loan sizes in proportion.
The 15,413 returning drawdown customers figure in H1 2020 was down 13% year-on-year to the lowest number seen since H2 2017 (13,209) as people paused to assess the impact of COVID-19 before making use of agreed reserves
David Burrowes, chairman of the ERC, said: “The unprecedented uncertainty of the first six months of 2020 has affected households and businesses alike, with the equity release market no exception.
“While pent-up demand in Q1 led to a strong first quarter, the impact of COVID-19 and the lockdown dominated Q2 before showing initial signs of recovery in June.
“Despite this uncertainty, the market has shown resilience and consumers considering equity release continue to find a wide range of product options on the market, while the average rate has fallen considerably over the last eighteen months.
“As the UK’s ageing population seeks to fund increasingly longer retirements, property wealth can play a fundamental role for many people, both now and in the future, as part of a more joined-up approach to planning for retirement.
“The challenges that lie ahead show no signs of easing, so it is important that people are aware of all the options available to them to help fund later life.
“We believe the robust standards upheld by the Council, which were evolved last year to be outcomes-focused, provide the highest level of consumer protection of any later life property-based loan.
“Looking ahead, we are committed, now more than ever before, to working with members, industry, government, and regulators to ensure the best possible consumer outcomes.”
Stephen Lowe, group communications director at Just Group, said: “The record start to the year was thrust into reverse when lockdown was announced, presenting huge challenges.
“We quickly moved to home-based working and modified the way we did business to adapt to the new constraints but understandably many potential customers put their financial plans on ice.
“Since those early days of the spring, we have seen activity picking up and returning to pre-COVID levels.
“The structural drivers of growth for the equity release market are strong and will result in people continuing to use home equity to support their later life.
“Customers are benefitting from lower borrowing costs on lifetime mortgages and the rapid expansion of more flexible options.
“These product innovations are helping to attract a broader range of customers from people looking to boost their income, to those needing a cash lump sum and others wishing to gift money as part of estate planning.
“Equity release is not the only market to have witnessed some short term volatility in demand as a result of COVID, but its growth is underpinned by long-term financial and demographic trends.”