Claire Barker is managing director of Equilaw
Figures published by the Equity Release Council have revealed that £3.92bn worth of housing equity was released by property owners in 2019, with almost 45,000 customers drawing lump sum averages of £97,300 or £64,000 on drawdown mortgages.
These returns mark a small decrease on figures for the previous year (when 46,297 customers unlocked £3.94bn worth of property wealth) but more than hold their own when compared to the number of conventional mortgage approvals recorded during 2019 (with figures reaching a seven-month low in October following three consecutive months of decline) and taking into account the inevitable impact of Brexit on consumer confidence.
Yet, while some financial commentators have chosen to view the figures as evidence of stagnation, or even saturation, within the ER market, others (such as Mark Gregory, chief executive of Equity Release Supermarket and David Burrowes, chairman of the ERC) have described them as indicative of a period of consolidation across the sector and as a gateway to a new decade of growth.
Indeed, the last three months of 2019 proved to be the busiest period of the year for the industry, with over £1bn worth of equity being unlocked by consumers in the lead up to Christmas and overall transactions demonstrating a 6% increase on the previous quarter; all of which was achieved despite the Westminster political soap opera reaching its peak at this time.
Moreover, with both house prices and residential transactions experiencing a demonstrable upturn in the wake of the general election and the much vaunted Boris Bounce continuing to stoke levels of consumer confidence and demand to pre-Brexit heights, there is every indication that the later life lending sector could be on the verge of a new era of boom.
For example, recent research by Canada Life has found that over 40% of homeowners believe they are likely to utilise the wealth tied up in their property to fund future retirements, with 15 million saying that they intend to retain their current home rather than downsize.
In addition, with average increases in house prices adding over £1bn worth of equity to UK homeowners aged 55 or over during 2019, the research has also established that growing numbers of advisors now believe that revenues within the ER market could grow to £5bn or more in 2020 – a potentially record breaking performance. So, the holding pattern of 2019 looks likely to serve as a springboard for future gains.
The industry has also consolidated its position amongst customer bases by strengthening the breadth and range of its product choices, with the number of options growing by 128% between August 2018 and August 2019.
Furthermore, the introduction of innovative new product features has offered a more flexible approach to lending, with interest or value repayment options and mortgages which protect intended inheritance amounts proving particularly popular.
And, of course, interest rates continue to sit at their lowest level for many years, with intensifying competition amongst lenders pushing averages to a record 4.19% (as of last September).
Yet, perhaps the most important (and gratifying) development of recent times has been the dramatic upsurge in ERC membership, with the number of firms applying to join the trade body effectively doubling over the past two years (up from 219 in 2017 to 431) and the number of registrations amongst adviser firms, solicitor practices and individual members growing by 35%, 46% and 77% (respectively) in 2019.
This upswing is significant for the future growth and reputation of the equity release sector, as it brings all members under the ERC’s best practice standards and thereby ensures that principles of service, security and protection are maintained and applied across the industry.
In November of last year, for example, the ERC launched an update of its existing standards following a consultation of members (including providers, advisers, solicitors and surveyors) as well as the Financial Conduct Authority, the Treasury and the Mortgage and Pensions Service.
These rules are designed to build on existing regulatory requirements by offering three distinct levels of protection to clients; namely, fully regulated financial advice, clear product safeguards and independent face-to-face legal advice.
They are also intended to ensure that clients who exhibit mental, physical or financial vulnerability are offered support and guidance at every stage of an application and to safeguard customers from being coerced into taking contracts that may be detrimental to their circumstances.
In short, they provide a model (or infrastructure) that is in line with current regulatory thinking and which allows for future developments within the later life lending sector.
This means that, as we approach the new financial year, our industry is in a unique position to capitalise on revitalising levels of demand and confidence amongst financial consumers, boasting a wide choice of products, a diversifying range of inbuilt features that can cater to the shifting needs or circumstances of clients, increasingly attractive rates and a comprehensive set of guidelines and principles with which to underpin the entire sector.
Nothing future-proofs a financial enterprise better than a period of consolidation at all levels. Let it be our foundation for the future.