Key: Older homeowners release £4.4bn

Around one in five equity release plans (19%) taken out in 2021 was used to support family while two in five (38%) were used to repay residential mortgages or remortgage existing equity release borrowing.

Key: Older homeowners release £4.4bn

Older homeowners released a record £4.4bn in property wealth last year at a rate of more than £12m a day, according to data from equity release adviser Key.

Around one in five equity release plans (19%) taken out in 2021 was used to support family while two in five (38%) were used to repay residential mortgages or remortgage existing equity release borrowing.

While the number of plans taken out increased by nearly 4% in 2021 to 41,991 (FY 2020 – 40,470), it was still lower than the record reached in 2018 (47,081) and the 28% growth in the value of the market was driven by customers releasing larger amounts.

Focused on supporting wider families and managing debt, over-55s released an average £104,792 worth of housing equity via equity release during 2021, an increase of 23% on the previous year and 37% higher than 2019 before the pandemic started.

Remortgaging became much more important in 2021 with around 5,295 customers moving for lower rates compared with 1,930 remortgage cases in 2020, the data from Key showed.

The average customer moved a balance of £135,529 from an interest rate of 5.1% to 3.6% and the volume of cases accounted for 22% of all equity released used for debt repayment.

Key said existing customers took out an additional £494.48m last year in drawdown and further advances and customers used drawdown plans to reserve a further £1.32bn during 2021.

Drawdown plans accounted for 74% of sales last year compared with 70% in the previous year with lump sum mortgages accounting for 26%.

The number of customers using property wealth to pay off mortgages nearly doubled from 20% in 2020 to 38% last year and the numbers using it to pay off unsecured debt remained steady at around 27%.

However, the amount of money used to pay unsecured debt dropped from 18% to just 6% suggesting older homeowners were able to use their incomes to pay off debts as COVID-19 restrictions hit spending. Spending on holidays continued to fall from 23% in 2020 to just 7%.

Will Hale, chief executive at Key, said: “To record this type of growth against the backdrop of a pandemic suggests that the equity release market is starting to live up to the potential that we have been highlighting for so long and is becoming a true later life lending market.

“We’ve seen a subtle shift away from discretionary spending with more customers focusing on using their housing equity to improve their financial resilience by repaying or remortgaging borrowing while others have concentrated on supporting family.

"The growing desire to move existing equity release borrowing to a better rate has been a feature of 2021 and we see this becoming an increasingly normal part of the market.

“Looking ahead, with customers having focusing on meeting pressing needs over the last 24 months, we anticipate that there will be pent up demand for discretionary spending amongst some over-55s who have found that their retirement is currently very different from what they anticipated.

"However, this is likely to be tempered by inflationary pressures and increasing numbers of customers seeking to boost their or their families spending power to meet rising household bills.

“The later life lending market is able to support these wide ranging needs and this will be good for consumers, the market and the wider economy as we move through 2022.

"As an industry, we must rise to the challenge of supporting our clients by continuing the evolution that has seen significant growth in innovative products and options for customers.”

Stuart Wilson, chief executive of Air Group, added: “One of the key takeaways to come out of this Market Monitor, is the sector’s growing maturity when it comes to refinancing and rebroking.

"We are a long way past the point where initial equity release borrowing is ‘for life’ and it’s clear that both advisers and their clients have been benefiting from the sector’s competitiveness, particularly in terms of lower rates but also in terms of the flexibility now offered by many lenders.

"A 174% increase in rebroking is clearly significant and provides advisers with something akin to a new front for activity, in terms of supporting existing clients and ensuring they are on the right product at regular intervals.

“The other point to make is around the increase in average loan size – up 23% to close to £105,000 – and the use of that money, predominantly in order to pay off debt and to support family members.

"In a sense we’re seeing uses for equity release at both ends of the mortgage ‘life span’ with customers increasingly using the products to pay off mortgages, while at the same time helping family with deposits in order to help them on the ladder.

"There is much to be positive about here, as we have a growing acceptance that the home is an asset which can be utilised in a variety of ways to provide all kinds of solutions.

"These figures should provide all later life lending stakeholders with a positive boost, particularly advisers, as they reveal a strong foundation for business and a growing demand and need amongst consumers.”

Dave Harris, chief executive of more2life, said: “Today’s figures from the Key market monitor demonstrate, without a doubt, the strength of the UK equity release market.

"The record £4.4bn value of equity released across the year makes clear the determination of advisers and lenders, who worked tirelessly to support clients, despite the challenges of 2021.

“Using equity release to manage their finances by repaying debt or fund larger purchases continued to dominate the minds of customers although one in five were also keen to use opportunities such as the stamp duty holiday to help their families.

"This saw the average amount released climb 23% year on year – a rise that was also impacted by the growing number of people who are choosing to remortgage existing equity release plans.

“The South East in particular saw the number of plans taken out stay stable, but the value of those plans rise 20%. This mirrors the pivot away from discretionary spending, suggesting that the sector’s efforts in promoting the benefits of equity release as a valuable financial tool, as well as being a boost to retirement income, have yielded dividends.

“The increase in customer choice is notably positive, with the number of products available in the market skyrocketing from 453 at the end of 2020, to 701 a year later. The market is showing no signs of slowing down and we expect to see these trends continue in the months to come.”

Jim Boyd, chief executive of the Equity Release Council, added:“Key’s forecast highlights 2021 as a milestone year for the modern equity release market, demonstrating the increasingly important role of housing wealth as a mainstay in later life planning for consumers as they chose the option of equity release to meet their needs and financial ambitions.

"Market growth is underpinned by an increase in a broad range of adaptable products and the Equity Release Council’s standards, which mandate rigorous financial and independent legal advice and enable consumers to trust that equity release is safe and reliable.

“As people face up to cost-of-living pressures and find their pension income needs a boost, it’s vital to consider all financial options and bear in mind how circumstances may change in future.”

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