Older homeowners release £1.47bn of wealth

Older homeowners released £1.47 billion worth of property wealth in the first half of 2020 but this was driven by a buoyant Quarter 1 as the impact of the coronavirus and resulting political and economic uncertainty hit the market in Quarter 2, a Market Monitor report from equity release adviser Key has indicated.

Between Quarter 1 (Q1) 2020 (11,495) and Quarter 2 (Q2) 2020 (8,374), the market saw a 27% fall in the number of customers using equity release and a 45% fall in the amount of new equity released (£949 million to £521 million).  The total value of plans including reserved drawdown fell from £1.32 billion (Q1 2020) to £767 million (Q2 2020) over the same period.

While some of this may be due to customers being more cautious, demand has remained strong so the servicing challenges faced by the industry due to lockdown are likely to have had some impact which suggests we may see a bounce back in Quarter 3.

Low volumes in Q2 impacted on H1 figures with the number of plans taken out falling 10% to 19,870 from the same time last year (H1 2019 – 22,216) while total property wealth value released fell 12.6% to £1.47 billion from £1.68 billion.

The total market including unused drawdown facilities was worth £2.04 billion in the six months compared with £2.38 billion with the value of reserved drawdown falling to £624 million from £706 million. In the first quarter the value of reserved drawdown was higher than last year at £390 million compared with £340 million.

The average loan amount fell slightly in H1 2020 to £74,014 (H1 2019 – £76,064) while the average property value increased slightly to £321,209 (H1 2019 – £318,571).   Average customer ages also remained relatively static at 70-years old (H1 2019 – 71 years old).

Commenting on the figures Will Hale, CEO at Key, said “The unprecedented circumstances the UK and the world finds itself in due to the coronavirus has been reflected in the significant slowdown in the equity release market in the second quarter. Whilst the sector has been remarkably resilient in adjusting working practices in the face of lockdown to ensure we can continue to help customers, there are a number of knock on effects from the current pandemic.”

“Indeed, not only are cases taking longer to complete but it is only appropriate that people are delaying their decision to access their housing equity due to the current uncertainty. At Key, we have certainly been having these types of conversations with customers and really focused on helping people decide whether they have an immediate need or perhaps can wait until society returns to a situation when booking a holiday or age-proofing their home is possible.”

“That said, demand has remained strong as more customers look at explore how housing equity could help them support them in later life and, as we move to more normal trading conditions, we are confident that these macro drivers will ensure that we will return to growth by year end and into 2021.”

Key’s market analysis highlights that in H1 2020, while 59% of people spent some of the equity they released on home or garden renovations only 16% of the proceeds were spent on this reason. Instead, repaying mortgages (24%) and gifting (21%) were more common.

Given the unusual situation the economy finds itself in, Key also looked at how spending patterns in Q1 2020 differed from those in Q2 2020.  This suggested that customers were focused on making their finances more secure (+6% spent on mortgage repayment) rather than discretionary spending (-4% spent on holidays).

Hale continued “Q1 2020 was very different from Q2 2020 and it is only appropriate that those customers exploring equity release during the time of the pandemic have been focused on shoring up their finances by repaying debt and supporting their wider families rather than looking to spend money on holidays or home and garden improvements.  Even with the changes that the Chancellor recently announced, many older consumers are likely to be extremely cautious about their choices around their spending for the foreseeable future – although we may see an increase in gifting to family members looking to get on, or move up, the housing ladder given the stamp duty holiday.”

“At Key, at the onset of the crisis we were proactive in amending both our advice philosophy and our approach to identification of vulnerability. Our focus has been on supporting customers who have specific needs rather than unmet desires.  With people unable to go on holiday or spend money on age proofing their home, the responsible approach has been to advise them to wait until the market returns to more normal trading conditions and they could make sustainable long-term decisions.”

Across the six months nearly three-quarters (72%) of plans taken out were drawdown enabling customers to manage their borrowing compared with 28% which were lump sum mortgages. During H1 2020, there were an average of 387 products on the market with 41% allowing interest repayments and 63% allowing ad hoc capital repayments.

Equity release customers benefited from low interest rates to switch plans for more competitive deals – one in eight (12%) of customers changed plans to manage existing loans or increase their borrowing compared with 5% in H1 2019.