Equity release catching up with pensions as source of retirement finance

Michael Lloyd

March 16, 2018

Record equity release lending of £3.06bn in 2017 saw housing wealth withdrawals gain ground on flexible pension payments as a source of retirement finance.

The Equity Release Council’s Spring 2018 Market Report found growing interest in the equity release market from consumers.

This is as more homeowners consider housing wealth among their later life funding options and find an increasingly flexible range of products enabling them to unlock some of its value.

David Burrowes, chairman of the Equity Release Council, said: “The Spring 2018 Market Report, which marks my first as chairman of the Equity Release Council, comes at a pivotal time for the industry.

“The council’s aim is for consumers to see equity release as a safe, mainstream and accessible financial solution to their needs in later life and retirement plans.

“With record levels of market growth and more flexible product options than ever before, using housing wealth to boost retirement income is becoming firmly established as a viable and compelling solution to consumer funding needs.”

“Looking forward, we expect the need for new sources of income in retirement will continue to grow as many people will be unable to rely on pressured pension pots.”

In Q2 2016, just 29p of housing wealth was unlocked by over-55s for every £1 of savings accessed via flexible pension payments following the introduction of ‘pension freedoms’ a year earlier.

This rose to 43p by Q4 2016, climbing again to 47p across 2017 as a whole and reached 56p in Q4 2017, as property becomes increasingly important as a supplementary source of retirement finance.

Comparing year-on-year, housing wealth withdrawals grew 25% from Q4 2016 to Q4 2017 and by 34% from H2 2016 to H2 2017.

Burrowes added: “It is vital more people understand its possibilities not only to provide income in later life or pay off debts, but also to provide a ‘living inheritance’ for family members and help fund care needs.

“Helping young people get on the housing ladder and paying for social care are at the top of the political agenda, and we look forward to strongly advocating for the role equity release can play in helping to meet these policy challenges.”

Growth in lifetime mortgage customer numbers outpaced other areas of the mortgage market in 2017 for a second successive year.

Some 10 years ago, there were 88 first-time buyers, remortgagers, homemovers and new or remortgaging buy-to-let borrowers in the market for every new lifetime mortgage customer. That number fell to 56 in 2012 and has since fallen again to 38 in 2017.

Growing demand for equity release in recent years has been met by greater competition from providers with the amount of products growing from 69 in January 2017 to 86 in January 2018.

Competition has driven greater innovation in the market. Over two thirds (70%) of product options now offer consumers the choice to make ad-hoc, penalty-free voluntary or partial repayments of their loan, to minimise the build-up of interest and even reduce the loan over time.

Competitive pricing for equity release products is also driving growth in the sector. Despite the Bank of England Base Rate rising from 0.25% to 0.5% in November 2017, average product rates fell by 0.23% over the 12 months from January 2017 to 5.14% in January 2018.

Dean Mirfin, chief product officer at Key Retirement, said: “The co ntribution of property wealth to improving retirement standards of living is increasing all the time and the equity release market should expand to more than £3.85bn this year which would mean growth of around 30%.

“There are huge opportunities for lenders to launch new plans and compete for business. That will be good news for customers who could benefit from ideas such as allowing borrowers to convert part of their loan to roll-up and widening choice for older borrowers.

“More options for customers will increase competition and underling the need for expert independent advice.”

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