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Interest-only borrowers seeking equity release drive up lump sum lending

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  • 28/01/2021
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Interest-only borrowers seeking equity release drive up lump sum lending
Interest-only mortgage borrowers with loans reaching maturity took out equity release in larger numbers than ever before in 2020, as total lending hit £3.89bn.

Equity Release Council figures show lump sum lifetime made up 43 per cent of new plans, the highest annual share of activity since 2009 as 40,000 borrowers with interest-only mortgages reached term-end last year, owing £104,000 on average.

The average new lump sum lifetime mortgage agreed was £104,501, up three per cent from Q4 2019.

The Equity Release Council suggested the figures showed ‘resilience’ however caution remains as the figures showed 10 per cent fewer plans, 11 per cent less customers and a 21 per cent drop in drawdown from existing plans than the previous year.

David Burrowes, chairman of the Equity Release Council, (pictured) said the figures showed market resilience after a year that presented huge challenges to household finances and business operations, but also evidence of customers biding their time before committing to release equity from homes.

“New plans were delayed from earlier in the year and fewer customers have made use of drawdown reserves or sought extensions of existing loans,” said Burrowes.

He added: “Ten years of transformation have made equity release an important financial planning tool that is increasingly valued by our ageing population.”

The disruption of the Covid-19 pandemic saw 57 per cent of lending activity concentrated in the first and final quarters of 2020.

The average equity release interest rate fell to 4.01 per cent midway through Q4 2020, with the lowest rates at 2.30 per cent, according to ERC data.

Simon Chalk, managing director and Later living planner at Laterlivingnow, said his firm has seen some larger deals involving end-of-term interest-only, often from business owners with sizeable assets and six-figure mortgages still outstanding.

Chalk said recent Touchstone figures reveal the pandemic and recalibration of the advice markets have also loosened the grip of Key and Age, which is benefiting smaller specialist advisers and consumers.

“Many of those cases have fallen to tier two advisers like Equity Release Supermarket or tier three like us or Sixty Plus and the new advisers entering the market,” he said.

He added these advice firms are seeing the buying power reserved for tier one, with more access to underwriters, the demise of exclusives and higher levels of commission through mortgage clubs like Air Group, allowing them to invest in businesses.

 

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