Equity release market at 15 year high

The average customer released £56,917 in 2013: more than in any year since 1998. Even allowing for inflation, this sum has grown by £11,739 (26%) in the last five years alone.

Customers borrowed even more in the final quarter of 2013, releasing £60,938 on average. This was the first time the typical plan has exceeded £60,000 in any quarter since 1998.

£60,000 is a ‘magic number’ for over-55 homeowners, allowing many to use a modest portion of their housing wealth to boost their retirement income, manage their finances better and reduce existing debt.

Research by The Council¹ shows this sum – equivalent to 25% of over-55s’ average property wealth – would help 60% to improve their quality of life, provide 21% with peace of mind and save 11% from downsizing.

Total lending through equity release in the second half of 2013 reached a six-year high with more than 10,000 new customers agreeing £594.3m of plans: worth 3% more than the equivalent period in 2008 (£577.4m).

The final quarter of 2013 alone saw customers release £310.2m: more than any quarter since autumn 2007.

Total lending of £1.07bn for 2013 was 16% higher than 2012 while customer numbers were up 7% year-on-year.

The total value of annual equity release loans to over-55s has now grown by 36% in the last two years.

Two in three customers in 2013 (66%) opted for regular income through drawdown products while 34% chose lump sum payments.

Sales via independent advisers accounted for over £1bn of loans for the first time since tracking began in 2003, with 97% of customers using this route.

Some equity release products currently allow over-55s to borrow up to 55% of their property’s value.

The Council’s research shows the average over-55 homeowner’s property is worth £236,110, meaning they could withdraw up to £129,861 through equity release.

Yet the rise in average borrowing still leaves customers releasing less than half of this sum (£60,938 in Q4 2013 – 47%): equivalent to just 26% of their total property wealth.

The Council’s research reveals how this amount of equity can help over-55 homeowners achieve a range of financial goals.

More than two in five (43%) would use it to provide extra retirement income to meet everyday costs, putting an average of £17,909 towards this end.

A similar number (40%) would fund home improvements, spending an average of £9,415.

The 15% who would use equity release to reduce or pay off their existing mortgage would use £28,362 to do so, while 27% would support family members to the tune of £14,528.

Nigel Waterson, chairman of the Equity Release Council said: “These figures show that the UK equity release sector is growing rapidly. We are now back to pre-financial crash levels, which is a huge milestone for the sector.

“An asset-rich generation is increasingly taking positive steps to use their property wealth to enjoy a better standard of living.

“For some that means clearing debt, while for others it means having more room in their budget to pay for extras or simply cope better with day-to-day costs.

“£60,000 is barely a quarter of the value tied up in the average property, yet it can make a world of difference to many people in their later years.

“Using a modest share of their housing wealth is helping more and more over-55s to live a financially independent lifestyle, giving them freedom to budget for a more comfortable retirement.

“The advice process means anyone considering equity release will be guided every step of the way so their product choice is clearly understood and best suited to their needs.

“Recent growth points to equity release becoming more and more valuable to UK retirees, as a mainstream product that can offer financial security in their later years.”

Ged Hosty, managing director of equity release at Partnership said the figures demonstrate that the equity release market had come through the global financial crisis in much better shape than almost any other sector of financial services.

He said: “Lending dropped by only a third from peak to the lowest level of £790m in 2011, and now stands back at the volume last seen in 2008. This is excellent news and bodes well for the future of the industry.

“The most encouraging trend is the growth in sales by Independent Financial Advisers, with broker sales now standing at their highest level ever and taking 97% of the market.

“This is a significant leap from 60% in 2003 and clearly demonstrates the importance to customers of independent advice for this important financial decision.”