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Debt consolidation with equity release leaps as Covid impact hits – Key

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  • 18/11/2020
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Debt consolidation with equity release leaps as Covid impact hits – Key
Using equity release for debt consolidation and to cover mortgage payments has soared since the coronavirus pandemic hit the UK in March.

 

Almost half of all equity release new business in July to September was for these reasons – up from 37 per cent in Q1 and 44 per cent in Q2, according to the latest figures from Key.

This increase has taken place in a market returning close to normal, with a total of £884m borrowed through 10,671 sales in the three-month period, up from £521m with 8,374 completions from April to June.

This overall value of lending was virtually unchanged from the £887m released in Q3 last year although the number of sales was down nine per cent – illustrating borrowers are taking larger sums.

The figures come just a day after Association of Mortgage Intermediaries chief executive Robert Sinclair told Specialist Lending Solutions the FCA was particularly concerned about debt consolidation advice in the equity release and second charge sectors.

Earlier this year the FCA highlighted its interest in reviewing advice quality and fees within the equity release market and is concerned about how vulnerable clients are treated.

 

Making finances robust

Key noted the Q3 figures build on the trend seen across 2020 toward customers using equity release to make their finances as robust as possible by cutting their outgoings.

Alongside the £415m on clearing debts and mortgages, 25 per cent totalling £221m was used to support family and friends via gifting – up from 21 per cent the previous two quarters.

Around 11 per cent or £97m went on home improvements – mainly for age-proofing houses so people can stay in their homes – while just three per cent or £26m was spent on holidays.

The proportion of sales for uses on these last two categories fell by six per cent and five per cent from March.

 

Reducing outgoings

Will Hale, CEO at Key, said: “In Q3, we saw a return to more normal market conditions driven by many customers looking to make their finances more robust by reducing their outgoings or supplementing their income.

“While the payment holidays offered by big residential lenders have certainly benefitted many, older borrowers who either fear redundancy and a tough climb back into work or early retirement have looked to use equity release to reduce the financial pressure they are feeling.

“Safe in the knowledge that not only are rates at historic lows but through modern flexible equity release plans they can service interest or make ad hoc capital repayments if they so wish to mitigate the impact of roll-up interest.”

 

Funding essential spending

He added that the Stamp Duty Holiday had also prompted more gifting to help younger relatives onto the property ladder with recipient’s receiving an average of £57,549.

“The market is maturing and is now very much focused on essential rather than discretionary spending,” he said.

Hale also noted that only 15 per cent of those who enquire about equity release end up taking a plan.

And he warned: “There will be tough times ahead, but the market remains strong and will continue to evolve to ensure that products and advice services are well positioned to help customers use their housing equity to navigate through later life.”

 

 

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