Equity release has seen huge growth in recent years. According to figures from the Equity Release Council the value of lending in the five years from 2011 onwards has almost tripled, passing the £2bn mark last year.
And new figures from Moneyfacts have highlighted how rates have fallen, while product choice has increased. It revealed that the average lifetime fixed rate had dropped from 5.91% in April 2015 to 5.63% today, a new record low, while the number of lifetime deals had jumped from 52 to 82 in the same period, also a record.
Rate isn’t a major factor
Whether falling rates have contributed in any great way to the increasing use of equity release is open to question though.
Andrea Rozario, chief corporate officer at Bower Retirement, said that falling interest rates had definitely helped, noting that the sector had come in for a lot of criticism over the years because of the cost of deals.
She added: “As rates have come down, and we have seen more competition, the more accessible equity release has become for customers. It is great for us as an industry to see moves that mitigate any negative reception.”
Dean Mirfin, technical director at Key Retirement, pointed out that the regulator demands that equity release is not sold on rate – it’s a question of establishing exactly what the borrower needs, and then finding the right product to meet those needs.
He added that the market had benefitted enormously from added competition, not simply because that had pushed rates down but because it had also resulted in innovative product design.
Mirfin continued: “Downsizing protection is one added feature that has become more popular in the last year or so; after you have had the loan for at least five years, all early repayment charges are waived. That gives massive peace of mind to people, knowing they won’t get hit with a big penalty if they choose to move to a retirement property which they couldn’t port the loan onto.”
Last month Mortgage Solutions revealed that another new lender, Responsible Lending, plans to formally launch into the market later this year.
As equity release has become more popular, a number of mainstream intermediaries have announced partnerships with equity release specialists. For example earlier this month TenetLime announced its members would be able to refer clients on to receive equity release advice from Age Partnership, pointing to the increased demand it had seen from its clients.
Mirfin noted that a “sizeable percentage” of Key’s business is referred from other mainstream brokers rather than being generated directly.
He said: “A lot of these advisers have the permissions to do it, but because they don’t see the volume, they feel happier referring it on. They aren’t turning clients away because they feel their knowledge isn’t up to speed, and they get to share in the revenue too. It’s a relatively painless process.”
Rozario added: “Fostering a relationship with a company that specialises in equity release is something we encourage, and it is on the increase. It’s not enough to just get your equity release advice qualifications – it’s a different customer service process, and a lot of advisers are beginning to recognise their clients will benefit from advice from a specialist.”
The prospect of a large swathe of interest-only mortgages reaching maturity in the next couple of years is also seen as a further boost for the equity release industry, with equity release seen as a ‘lifeline’ to borrowers with few repayment options.
Mirfin said that equity release will be an option for some facing questions over how to pay off their interest-only mortgages, but emphasised that it needs to be considered alongside all other options too.
He said: “You have to go through the process, see if they qualify for a normal mortgage or whether they would be better off downsizing, as well as equity release. It’s not that equity release should be considered the last resort, but you simply have to weigh it up against the other options you may have.”