According to the Equity Release Council’s (ERC) spring report, the average loan size withdrawn from homes either in a single lump sum or through incremental drawdowns amounted to £125,000.
This amount is four times more than a typical pensioner couple’s annual income of £32,708, and over seven times more than the £16,588 a single pensioner would receive annually.
Will Hale, chief executive at Key, said: “At a time when very few are immune to the rising cost of living, this is particularly helpful for older people who may be on a fixed income or acting as a source of financial support for the wider family.”
Although mortgage debt in the UK reached record levels in 2021, homeowners gained an average of £869 in equity for every £100 newly borrowed due to house price rises.
By Q4 2021, the average house price increased to £274,712, £41,697 more than the £233,015 average in Q1 2020. This resulted in the average equity rising from £173,363 in Q1 2020 to £211,254 in the final quarter of last year.
A growing market
The equity release market returned to growth in 2021, supporting 76,154 borrowers in total.
Of these, 39,275 either took out new products or withdrew from existing plans. Over the year, equity release borrowers unlocked £4.8bn in property wealth, up on £3.89bn in 2020.
In 2021, equity release products accounted for 76 per cent of later life products given to borrowers over the age of 65, and a quarter of deals given to those over 55. This was stable compared to previous quarters.
Rising rates and more product choice
Despite a dip in product availability in July 2020 to 379, the number of equity release products recovered in 2021. By July last year, there were 668 equity release deals on the market.
As of January 2022, there were 665 equity release products available.
Average equity release mortgage rates rose to 4.16 per cent in January this year, up on 3.95 per cent during the same month last year. However, the most recent average rate is down on January 2020’s 4.48 per cent.
Furthermore, the ERC said the cost of borrowing was cheaper than in 2016 when the average rate was 6.2 per cent. It calculated that an equity release customer borrowing £100,000 over 10 years today would save over £30,000 in interest rates costs when compared to 2016.
Although average rates have broken the four per cent barrier, there are still 300 products on the market with a rate below this. This is five times more than the number of products which would have had rates below four per cent in January 2020.
Just 11 equity release products have rates of above six per cent, 68 deals have rates between five and six per cent, and 276 products have rates between four and five per cent.
Product flexibility
More equity release products offer flexible features, with 85 per cent allowing ad hoc penalty-free repayments by January 2022, up from 68 per cent six months prior.
The ERC’s data suggests that over 125,000 penalty-free partial capital repayments were made by customers last year worth a combined £78m.
Over the same period, some 63 per cent of products offer drawdown facilities, an increase on 55 per cent from July last year. Around 63 per cent offer downsizing protection, up from half in July last year.
The ERC also recently announced a fifth standard for equity release products, enabling annual partial repayments with no early repayment charges for all new plans.
Simon Gray, managing director at HUB Financial Solutions, said: “We are seeing the market evolve with new products and options to better service homeowners considering releasing equity.
“Along with greater innovation and competition, the introduction of the ERC’s new product standard allowing penalty-free partial repayments reinforces the focus on high levels of consumer protection at the bedrock of the market.”
In the second half of last year, there were 15,573 returning drawdown customers up from 12,358 in the first half of the year. The market serviced 12,339 new drawdown customers in H2, a slight dip on H1’s 12,649 customers.
David Burrowes, chair of the Equity Release Council, said: “With £1m added to the value of UK housing every minute last year, there can be little doubt that the options afforded by property wealth will register in many people’s thoughts as they make financial plans for the future.
“The equity release market’s return to growth is part of a wider pick-up in later life lending activity, and the flexible features of modern lifetime mortgages give customers more ways to manage their finances and access life-changing sums of money at a lower cost.”
He added: “As we move into an environment of growing cost-of-living pressures, the importance of rigorous advice will be greater than ever so that decisions to release equity continue to provide long-term satisfaction as well as short-term relief.”
