The spring 2017 Equity Release Market Report from the Equity Release Council has reported that 2016 was a record-breaking year for equity release.
Lifetime mortgages – the most common product allowing over-55s to unlock their housing wealth in later life – become the fastest growing segment of the mortgage market in terms of customer numbers.
The volume of lifetime mortgage customers grew by 22% in 2016, with a total of 27,534 new plans agreed. Meanwhile the second fastest growing mortgage segment – buy-to-let remortgaging – saw an increase of 16%, having recorded the biggest annual growth rate in the previous three years.
Other segments of the mortgage market had a mixed year in 2016: while remortgaging numbers grew 14% and first-time buyer numbers by 8%, the volume of home mover mortgages fell by 2% while buy-to-let purchase mortgages fell 13% from 2015.
Equity release remains a small segment of the overall market, yet the second half of 2016 saw a record £1.24bn of housing wealth unlocked – the majority via lifetime mortgages – with total lending for the year reaching an unprecedented £2.15bn. The growth rate of lending between 2015 and 2016 was 34%: more than double the 16% seen from 2014 to 2015.
Growing appetite for unlocking housing wealth in later life is also apparent in the changing balance between the number of customers taking out lifetime mortgages and those taking out other mortgage products. In 2006, there was one new lifetime mortgage agreed for every 27 home mover mortgages and 43 remortgages. By 2016 this had reduced to one lifetime mortgage every 13 home movers and 14 remortgages respectively.
Recent years have seen the equity release market become increasingly competitive, as new providers enter the market looking to serve increased demand among older homeowners to access their housing wealth. This has resulted in a significant fall in average equity release rates of 51 basis points (bps) between July 2016 and January 2017 to 5.45%, with many providers offering rates below 5%.
At the same time, the number of products available to customers has continued to rise along with the flexibilities these offer, including downsizing protection, capped variable interest rates, and options to make monthly interest payments or annual capital repayments without incurring a charge.
Equity release products saw the most significant fall in rates across all mainstream personal borrowing options over this six month period. Personal loans of £10,000 experienced the second biggest fall – dropping by 46bps.
Over the year to January 2017, average equity release rates experienced an even greater decrease of 75bps from 6.20% in January 2016, while personal loans fell by 60bps.
Drawdown mortgage products continued to be the most popular type of equity release plan in 2016, with 65% of new customers opting for drawdown compared to 35% opting for lump sum mortgages. A small number took out home reversion plans. However, over the course of the year the proportion of lump sum customers increased slightly, from 33% in H1 to 37% in H2 (drawdown fell from 67% to 63% as a result).
The average age of equity release customers increased slightly in H2 2016, rising from 69.9 in H1 to 70.1 years old. The most popular age bracket to take out equity release products remains between 65 and 74 (accounting for 54.5% of all customers in H2 2016), which is typically the first decade of retirement. However, this is below the H1 2015 figure of 57.9%.
The Market Report also found that the proportion of older equity release customers is rising. Between H1 2016 and H2, the proportion aged 75-84 increased from 19.4% to 20.2%, while the proportion aged 85 and above increased from 3.0% to 4.1%. The proportion of customers aged 55-64 remained relatively stable, rising from 21.2% in H1 to 21.3% in H2 2016.
Nigel Waterson, chairman of The Equity Release Council, said: “2016 was a hugely significant year for the equity release sector. The value of lending has nearly tripled in the five years from 2011 to surpass the £2bn mark, and we also celebrated the 25th anniversary of the industry Standards which have been fundamental to establishing a safe and reliable market for consumers.
“The sector is becoming increasingly mainstream amid growing appetite from older homeowners, reflected by the fact that lifetime products were the fastest growing segment of the mortgage market last year. Older homeowners are increasingly realising that there are a number of potential uses for their housing wealth beyond supplementing their retirement income, including re-investing in their homes and helping younger family members by providing a living inheritance.
“Greater flexibilities and growing competition mean the equity release product range continues to evolve, and the Council and its growing membership remain steadfastly committed to ensuring best practice in advice and product delivery to ensure good outcomes for consumers.”