Older homeowners release £3.4bn in property wealth

Older homeowners released more than £3.4 billion in property wealth last year with most of the money used to make their finances more resilient and help families via gifting according to new data from equity release adviser Key.

Key says that against the backdrop of the ongoing global pandemic, there was a strong end to the year with 9,930 people releasing over than £1.1 billion in Q4 2020.  However, on an annual basis there was 12.5% decrease in plan sales (40,470 in 2020 from 46,247 in 2019) and a 4.4% reduction in the amount released (£3.456 billion in 2020 from £3,595 billion in 2019) as customers focused on meeting pressing needs rather than discretionary spending.

This trend towards using equity release to refinance debt and support their wider families via gifting also saw the average amount released increase by 9.2% from £77,735 (2019) to £84,919 (2020).   However, with house prices increasing by 6.43% over the last twelve-months, LTV’s remained at a modest 26% (25% – 2019) across all equity release borrowing and average interest rates fell to 2.8% in Q4 (3.15% in Q4 2019).

Drawdown remained the most popular product during the year accounting for 70% of all sales (with 73% in 2019). Having risen to 71 years old in 2014, the average customer age has remained remarkably consistent (72 years in 2019 and 71 years in 2020).

With many advisers – including Key – encouraging clients to focus on meeting pressing needs rather than discretionary spending, equity release has increasingly been used to help wider families (22%) or refinance mortgage (29%) or unsecured (18%) borrowing.

With 59% of plans making provision for ad hoc capital repayments, these products – with rates which start from 2.8% – can offer real flexibility to people as their circumstances evolve through later life and be of particular benefit to those who are juggling managing debt with limited retirement income.

Helping younger family members was also high up the agenda with £755 million being transferred between the generations in 2020.  With the stamp duty holiday coming to an end, 43% of these gifts were earmarked for housing deposits and 26% for an early inheritance – some of which was no doubt used for other types of property costs.

11% of the property wealth was spent on home improvements (17% in Q1 2020) and 3% on holidays (8% in Q1 2020).

Will Hale, CEO at Key, said:“While 2020 is down on 2019, the fact that we have only seen a 4.4% drop in the value of equity released suggests that customer demand remains strong supported by the efforts of advisers, lenders and other service providers in this challenging year.”

“Discretionary spending has fallen as equity release increasingly looks to support clients’ aspirations to help their families and make their finances as resilient as possible by refinancing debt.  While most people aspire to reach retirement without any mortgage or unsecured debt, this is certainly not possible for everyone and equity release can help to take the pressure of these families while still providing avenues for repayment.”

“With the end to the Stamp Duty Holiday on the horizon, it is also not entirely surprising to see that many older homeowners have taken the opportunity to pass wealth down the generations and help children or grandchildren onto the property ladder.  While this may change as we head in 2021 and the holiday comes to an end, I suspect the desire to help families will remain a strong driver of this market in years to come.”

Key says that while equity release business does vary by quarter on a more typical year, 2020 was particularly choppy driven by the impact of the pandemic on not only systems and processes but also customer demand.  Q2 when the first lockdown hit saw only 8,374 plans taken out which was a 45% quarter on quarter fall and a stark reminder of the real impact on the later life lending market.

However, things improved in Q3 and Q4 as advisers, lenders and service providers rolled out new processes and customer’s confidence increased. That said, we have still seen extended lag times (vs business as usual conditions) across all elements of the process so the FY completion numbers are perhaps not fully reflective of customer demand in H2 and it is likely that some of this demand will help drive completion volumes in Q1 2021.

	Q1	Q2	Q3	Q4
Volume	11,495	8,374	10,671	9,930
Value	£949 m	£521m	£883m	£1.1b

Hale continued “The national roll-out of vaccinations is providing some optimism but it is still hard to predict when the market will return to more normal trading conditions.  At the moment, our focus needs to be on finding the right outcome for each customer – encouraging them to think about their long term needs and ambitions.”

“Less than one in five of those who approach us end up taking out equity release.  Instead, they may look at downsizing, retirement interest-only mortgages or later life mortgages – or simply decide that while equity release is right for them, now isn’t the time to access their housing wealth.  Specialist advice supports all these options and is vital to ensuring that customers are confident that they have made the right choice for their individual circumstances.

“That said, demand has been resilient and pressure on household finances will extend far beyond the current health crisis so we need to think big.  As an industry, we must rise to the challenge of supporting our clients by evolving into a true later life lending market that has more innovative products and more options for customers.”