Meanwhile the number of equity release products available has more than doubled from 58 to 139 today.
In 2017, equity release lending broke through the £3bn barrier, while in the second quarter of this year, homeowners unlocked £971m from their homes suggesting the equity release market could soon be a £4bn industry.
According to the Equity Release Council’s Autumn 2018 Market Report, one of the driving forces behind this most recent rise is the increasingly complex needs of homeowners aged 55 and over.
Using the wealth locked up in their properties to boost their own finances, which have been undermined by poor returns on savings and low pension income, have traditionally been the main reasons why homeowners have turned to equity release.
Supporting social changes
However, the Equity Release Council’s report highlights how social changes, such as parents providing more support to younger generations, and the rising cost of care in later life is fuelling this recent spike in equity release lending.
As well as worrying about how they can help fund their children and grandchildren’s first step on the housing ladder, over-55s are also faced with the ever-rising costs of care, both for older parents and themselves.
Another driver behind the rise is the number of interest-only mortgages that have matured this year.
There are currently around 1.6 million people approaching retirement who have interest-only mortgages that are coming to an end, and many of those do not have the ability to repay the capital they owe.
Again, equity release is increasingly being used to offer a solution.
New entrants radicalised market
Many of the new products have been specifically designed to offer a solution to pensioners struggling to pay the capital on their interest-only loan.
Lenders offering this kind of flexibility allows the sector to grow as it gives borrowers the freedom to choose and control their retirement even as circumstances change.
It is clear that the market has evolved and I think it will continue to do so as we will see more lenders start to offer a wider range of products as the demand for more flexibility in the market increases.
The number of new entrants over the past few years have radicalised not only equity release products but the rates available, making the products even more attractive.
For example, the average rate on an equity release product just two years ago was 5.96% – now it is 5.22% and is continuing to fall, with a fifth of all products now under 5%.
Property rich, cash poor
Around 10 or 15 years ago, equity release was a fairly niche product – now, it is one of the fastest growing products in the lending market.
As lifestyles change and over 55 becomes ever younger, equity release has enormous potential for adding real value, not only to the mortgage market but also our economy and society as a whole.
With so many older people in a ‘property rich, cash poor’ situation, if they need to access cash, many have very little choice other than to unlock the capital tied up in their homes.
Brokers should make sure that equity release mortgages are on their radar as they can offer solutions to some of the biggest financial issues facing clients today.