And the fundamental shift in the market caused by increasing use of drawdown means there’s £197 million of untapped cash still to be withdrawn from the past six months’ new business, according to Key, putting the equity release market back in the position it was well before the financial crisis.
The average initial drawdown release was £28,174 in the six months but the total amount available was £53,328, and the average loan overall was £44,314.
Total plan sales in the first half of 2011 were 10,448 – 5% higher than the 9,928 in the first half of 2010 – while the total amount released increased by 3% to £463 million compared with £449.1 million in the same period of 2010, Key Retirement Solutions Equity Release Market Monitor showed.
A drawdown product is one when a lender will agree to release a sum of money based on the value of your client’s home. However, they do not need to take the full amount, they can take a little at a time when they really need it. This means they do not pay the charges they would if they took out the full amount. Typically this will lead to a small cash lump sum withdrawn when the deal is signed and subsequent withdrawals in the subsequent months and years until the full value of the loan is withdrawn.
The Market Monitor also revealed that the proportion of customers using some or all of the cash for home or garden improvements was virtually unchanged at 59% compared with 2010 but there was a drop in the percentage using it for holidays from 36% in 2010 to 31% this year.
The proportion using equity release to clear mortgages rose slightly from 17% in 2010 to 20%, while those clearing unsecured debts dropped slightly to 31% from 33%.
Commenting, Dean Mirfin, group director at KRS, said: “The equity release market is firmly established on a growth trend after years of decline and that is reflected in the number of new providers entering the market.
“The really significant fact which the industry has overlooked is that drawdown has changed the market forever – there is £197 million from the first half of this year alone, which has yet to be used, which if factored into total sales would take us back to the 2006 peak levels of lending when single, higher, advance business was more prolific. Total lending inclusive of drawdown facility is £660 million for the first 6 months of this year.
“The majority of client’s drawdown funds in the first few years of having taken a plan so it is right to factor the reserve into the overall lending levels.
“There were no dramatic swings in the uses of equity release however I expect there to be an increase in the use of equity release to repay mortgages and an increased number of grandparents utilising equity release to pay for the increase in tuition fees.”
Looking at the regional summary of the market monitor, London had the highest average value released owed primarily to the high average property value. Northern Ireland had the lowest total value of plans, again largely owed to the dramatic falls in property value seen over recent years.
The North and Yorkshire & Humberside regions both saw falls in the number of plans taken out while average property prices increased and stayed level respectively.
