Mortgage repayments hit record £38bn

27th September 2021

Mortgage repayments jumped by 20% to a record £38 billion in the first half of the year compared to 12 months ago, according to latest Equity Release Council statistics.

Debt payments were fuelled by regular repayments and record overpayments, new borrowing ahead of the stamp duty deadline and fewer mortgage payment holidays, as customers began to get their pre-pandemic plans on track.

This unprecedented paying down of debt is the equivalent to £200 million a day or £3,500 for every mortgaged household, says the trade body’s Autumn 2021 Market Report.

The figures showed that the country is now carrying over £1.5tn of mortgage debt for the first time on record, but the report points out that factors such as rising house price rises mean for every £1 of mortgage debt, there is more than £3 of equity in UK homes.

It adds that the overall value of the nation’s housing stock has risen from £5.67 trillion to £6.42 trillion over the last year, with private property wealth reaching a new high of £4.87 trillion.

Rising property prices means that more than three-quarters of the value of the average home is tied up in equity rather than debt, leaving £201,642 of property wealth for its owner to draw on, the survey says.

The total number of equity release products on the market jumped to a record high of 668 in July, from 448 six months earlier. The survey adds that the number of products for consumers to chose from has more doubled, rising by 127%, compared to two years ago. The average equity release rate “crept up modestly to 4.26%”, but the report points out there are still more options in the market with rates of 4% or lower than a year ago.

The report adds that new equity release customer levels remained broadly consistent with those seen in the first half of 2020, dipping slightly from 21,917 to 21,596 new plans taken out, but higher than this time last year when the first lockdown slowed activity to 18,420 new plans.

The average house price of new customers continues to rise to record levels for both new drawdowns, at £419,166, and lump sum plans, at £406,139.  This comes as UK property prices lifted over the last year hit an average of £265,668.

The average age of new customers remained stable in the first six months of this year at 70 years old for new drawdown customers 68.4 for new lump sum customers.

Equity Release Council Chairman David Burrowes said “UK households are converting unprecedented amounts of mortgage borrowing into property wealth as we look to move on from the worst of the pandemic. Combined with property price rises fuelled by the Stamp duty holiday, homeowners have record equity to potentially draw upon in later life.”

“The transformation of later life mortgages in recent years has given people more opportunities to access their biggest source of wealth.”

“We are seeing mindsets change to the point that tapping into property wealth is now a common consideration to meet various retirement needs, from topping up pension income to providing a ‘living inheritance’ via gifting to younger generations.”

“The modern equity release market has shown resilience in the face of uncertainty to climb back towards pre-pandemic levels.”

“The disruption of the last 18 months has not slowed the pace of innovation in lifetime lending, and it is important the market continues to evolve to address the financial challenges people will face in the post-pandemic world.”

Commenting on the figures, Will Hale, CEO at Key said “While the pandemic has been a source of real financial concern for many, it has seen others reduce outgoings and use this spare cash to increase mortgage capital repayments and put themselves in a stronger financial position.”

“However, while the Equity Release Council’s Autumn Report highlights the growth in property wealth and the relative strength of the housing market, we know from the recently released UK Finance statistics that many borrowers will still owe money past their 65th birthday.”

“Helping people to manage this borrowing and use the £4.87 trillion in private property wealth to meet the challenges of retirement is what is driving product innovation in the later life lending market.  Therefore, it is good to see growth in the range of flexible features available across different lenders and products. We know that there is appetite from customers to mitigate the impact of interest roll-up through the use of interest-served and/or ad hoc capital repayment options and other customers value the added reassurance of being able to leave a guaranteed inheritance or benefit from downsizing protection.”

“We see customers increasingly using equity release plans to access their property wealth so they can continue to live in their home and give money to family members as a pre-inheritance. In the first half of the year nearly a quarter of all money released was given to family as gifts with an average value of £72,520.”