The latest Equity Release Market Monitor from Key Retirement revealed that 2016 saw the number of equity release plans and the value of lending hit new record highs. The number of plans rocketed 17% to 27,666, while the value of those plans jumped by more than a quarter (26%) to £2.15bn.
A substantial part of that growth is down to increasing numbers of borrowers looking to clear existing debts on property – around one in five of all equity release plans are taken out in order to pay off an outstanding mortgage, with borrowers in the 65 to 69 age group the fastest growing subset of equity release borrowers.
Providing a lifeline
It’s not just about freeing up some additional income though – according to Key, equity release represents a “lifeline” for borrowers coming to the end of an interest-only mortgage, but with few options in order to clear the outstanding capital they owe.
Dean Mirfin, technical director at Key Retirement, pointed out that 2017 is the start of the first wave of interest-only maturities, and predicted that as further borrowers come to the end of their interest-only deals, they will increasingly look to equity release as an answer.
As the report states: “With reduced incomes in retirement, and tightened mainstream mortgage criteria, many are faced with the only option of selling their home to clear the debt. Increasingly though, equity release is providing a robust alternative to meeting this need.”
New partnerships
Andrea Rozario, chief corporate officer at Bower Retirement, said this chimed with her firm’s experiences, noting that many interest-only borrowers were lumbered with insufficient endowments or were simply unable to downsize as they may have expected.
She pointed out that the lack of affordability tests with some plans made them a more attractive choice than pursuing a traditional remortgage, and urged mainstream brokers who aren’t active in the equity release space to build partnerships with advisers that are.
Rozario said: “These borrowers are in a dire situation, and if they don’t know how to find their way to a specialist, then the mainstream broker has to duty to introduce them to someone who can provide the best advice. Brokers should recognise that equity release is a possible solution for these borrowers, and look at building relationships with specialists that they can trust to handle the client properly.”
More competition
Earlier this week, Bower led calls for more lenders to enter the equity release market, pointing to the positive impact the entry of L&G and OneFamily has made to the rates on offer.
Mirfin added: ““Rate cuts across the market and the launch of new solutions demonstrates that the market is responding to the growing need for alternatives to traditional retirement income solutions which are being squeezed by historically low interest rates.”
