In August 2018, 139 product options were available to consumers up from 58 in 2016, while just 24 product options existed in 2007, according to the Autumn 2018 Equity Release Council (ERC) market report.
The report found that the growing base of equity release customers in recent years – up by 81% from H1 2016 to H1 2018 – has been met with an increase in product choices, helping to meet homeowners’ increasingly complex needs in later life.
Four in five product options offer consumers the choice to make ad-hoc, penalty-free voluntary or partial repayments of their loan, up from 68% a year ago, while lifetime mortgages now include the option to ring fence equity. This means homeowners can retain some of the value of their property as a guaranteed minimum inheritance.
Additionally, increased choice has come with lower pricing driven by greater competition in the sector. The average interest rate for equity release products was 5.22% as of July 2018, down from 5.27% in July 2017 and from 5.96% a year earlier.
Comparing average rates by customer rather than by product shows that the typical new customer paid less than 5% across both draw down and lump sum plans
Demand for equity release is likely to rise
Due to the changing demographic landscape – in 50 years’ time the nation is expected to have an additional 8.6m people aged 65 and over – demand for equity release is likely to continue to rise as more people look to supplement their savings and help meet pressing social needs, including mounting care costs and inter-generational lending.
Number of homes in England bought with a gift or loan from family or friends has reached a new high of 1.1m.
Additionally, the latest industry data shows for every £1 of savings withdrawn via flexible pension payments in the last 12 months, 50p of housing wealth was unlocked via equity release – up from 40p a year earlier.
A total of 38,912 households aged 55 and over used equity release products from members of the ERC to unlock housing wealth in the first half of 2018.
This included 21,490 new plans agreed, up by 28% from 16,805 a year earlier. A further 15,709 returning drawdown customers made withdrawals from their agreed reserve funds between January and June, up 25% year-on-year.
Throughout H1 2018, the average house price among both lump sum and drawdown customers were above the latest UK average house price of £228,384.
The average size of a lump sum plan was smaller in H1 2018 than in H2 2017, bringing the average loan-to-value down to 30.8%.
In contrast, the average draw down plan increased, but customers continued to take less than a fifth (18.2%) of their total housing wealth as an initial advance – keeping further funds in reserve, limiting the build-up of interest over the lifetime of their plan.
New funding sources driving innovation
David Burrowes, chairman of the Equity Release Council (pictured), said these figures highlighted the rise in new products and increased product flexibility, which was helping older homeowners to fulfill a host of pressing personal, social and financial needs.
“This innovation has brought more competition to the later life lending arena, while maintaining the standards and protections which ensure equity release products are future proofed to provide good outcomes for consumers,” he said.
He added: “Industry and regulators must continue to work to ensure customers are aware of all the options available to them when deciding how best to support themselves and their families in later life, taking all their assets – including pensions, savings, investments and property – into consideration.”
Dave Harris, chief executive officer at equity release lender more 2 life, said: “The retirement lending market is expanding, with our own research showing that borrowing by the over-65s will surpass £142bn by 2027. Equity release is in a prime position to help homeowners who require access to extra cash whether they need it to repay borrowing such as interest-only mortgages, improve their standard of living in retirement or help their families.
“One of the keys to continued growth for the equity release market will be finding a greater variety of funding for lenders to help stimulate further product innovation. The industry has traditionally been funded by life insurers, but that pattern is beginning to change as other organisations such as pension schemes and asset management firms, turn towards the equity release sector as a good source of investment return.
“A wider range of funding like this will not only drive product innovation but as a result will lead to increased competition and ultimately, flexibility of choice for consumers.”