The recent Key Market Monitor for equity release performance in the UK during 2021 shows two themes which I believe highlight this growing maturity, and perhaps show a future path that will drive further customer demand and, rather importantly, adviser activity levels.
Reconnecting with clients
First up has to be the greater use of remortgaging amongst equity release borrowers. This is no doubt driven by many factors, including a much more competitive product space at present, but also a shift in mentality amongst advisers that equity release advice is not a ‘one and done for life’ transactional process.
Of course, these two factors combine together in terms of how advisers continue to interact and communicate with those clients for whom they have already provided advice, a recommendation and a completion. The Key Monitor has revealed just how this part of the market has taken off.
Over the year, the market saw a 174 per cent increase in rebroking, built off the price competitiveness in the equity release market but also fuelled by the far greater flexibility providers are now able to offer. That’s undoubtedly important because, as customer needs and circumstances shift, advisers should be in regular communication to respond and to move them to a more suitable and less-costly product if one exists.
If you want to see the benefits of that approach for the customer in black and white, then last year the average customer moved a balance of over £135,000 from an interest rate of 5.1 per cent to a new one of 3.6 per cent. That will generate a significant saving for the customer, and of course it generates business activity for the adviser.
New opportunities
I’ve mentioned that this effectively represents a ‘new front’ for advisers who, in the past, might not have conducted anywhere near a significant amount of remortgage business. Let’s be frank, as a sector, we have been a long way behind the norms of the mainstream mortgage market, and it is a real positive to see this becoming a trend that benefits both customers and advisers.
The other sign of maturity revealed by the Key report is around the increase in the average loan size – last year customers took out an average of close to £105,000. Bear in mind it was just shy of £85,000 in 2020 and only just over £77,000 in 2019.
That is a significant increase and again, as house price values rise and as homeowners become increasingly confident in using their home as an asset with equity to be accessed, I see this moving further up.
Equity release use
There is also a point to be made around need and the use of that money as well.
Customers are taking out higher amounts to pay off mortgage debt – almost double the number did this in 2021 at 38 per cent than 2020 when this accounted for 20 per cent of use – while they are also utilising their equity in order to help family members onto the housing ladder.
Again, these are further signs of a maturing sector and an understanding by customers of the best way to access their equity, and the solutions it affords them.
We shouldn’t under-estimate the progress this reveals, and as our sector matures, and there grows a greater need that can be financed by equity release and later life lending, this market should continue to develop and match the maturity of other sectors, and its client base.
