Key revealed that retired homeowners released more than £3.4 billion of property wealth over the course of 2019, with the year ending on a high.
However, the total value released dropped by 4% from £3.6 billion while the number of new plans taken out slipped by 3% from 47,081 to 45,598 last year. The last three months of the year saw signs of a return to growth with £921 million released compared with £887 million in the third quarter and a rise in plan sales to 11,820 from 11,722 suggesting a rise in consumer confidence.
Homeowners released nearly £9.5 million of property wealth a day in 2019 but caution among consumers and the dominance of drawdown saw the average amount released slip marginally to £75,631 compared with £76,473 in 2018.
Focus on drawdown
Sales of drawdown plans – which enable customers to manage their property wealth and leave cash to be taken later – accounted for 73% of the market last year compared with 64% in 2018. The total market including unused drawdown facilities was worth £4.9 billion in 2019 compared with £5 billion previously.
In 2019 drawdown accounted for 73% of new business, up by 9% from 64% in 2018. There has been a rise in the number of products on the market, with lenders launching more products which offer drawdown as a feature. As the latest products can offer some of the best rates and in a quest for flexibility, customers are leaning towards the products which have a drawdown feature.
Enhanced drawdown which offers improved terms to customers with health or lifestyle issues accounted for 20% of sales compared with 27% for lifetime mortgages in total (8% of which was enhanced).
Managing debts
Around 29% of equity release customers in 2019 used some or all of the cash to pay off loans or credit cards while 20% used money to clear existing mortgages as they looked to increase their financial resilience in retirement.
The numbers of customers switching from existing equity release plans to take advantage of historically low interest rates also rose to 5% in 2019 compared with 4% in the previous year. With more than 300 products available and ongoing product innovation advisers are likely to continue to see growth in rebroking in 2020.
Home improvements and holidays are still popular:
Around two out of three (64%) of customers used some or all of the cash they released to improve their homes or gardens in 2019. While some customers are undoubtable choosing to install the kitchen of their dreams, anecdotal evidence suggests that more are looking to age proof their homes to enable them to stay in them longer.
Almost a third (32%) were able to fund holidays with some of the money they released and gifting to family continued to be an important motivation for equity release – 28% of customers helped out family from their property wealth in 2019.
Around the country
Key’s Market Monitor, which analyses data reflecting both Equity Release Council members and non-members, shows strong growth continued in Northern Ireland, the West Midlands and Wales while the North West also saw an increase.
Northern Ireland saw the biggest rise in value released at nearly 17% year on year and in plan sales at more than 9%. Wales saw value released rise by nearly 10% and plans sales by almost 8% while the West Midlands recorded gains in value released of around 11% and plan sales by almost 7%.
Will Hale, CEO at Key, said: “2019 has been a busy year for the sector, there are now more funders than ever before in the market and more than 300 different plans as well as growing consumer interest. That said, we did not see the continued double digit growth that we have seen in recent years as consumers – unsettled by current economic and political events - chose to defer decisions around how housing equity might help them in later life.
“Although we saw small year on year falls in the value and volume of equity release taken out, the last two quarters were more upbeat and we start the year with a positive headwind fuelling the belief that we will continue to see growth in the equity release market. There are more than 24 million over-55s in the UK so market drivers remain strong and as consumer confidence grows we will increasingly see more people looking to take advantage of the innovative new products and continued low rates.
“Indeed, 2020 has the makings of a very interesting year for the equity release market but we need to continue to focus on educating and engaging with key audiences to clearly highlight how housing equity can play a role in meeting the challenges that individuals and the country as a whole face. Boosting retirement income, helping people to pay for social care at home and helping the younger generation onto the property ladder are all positive outcomes delivered by taking a holistic approach to managing your assets in retirement.”
Claire Singleton, Chief Executive, Legal & General Home Finance, comments: “Whilst 2019 didn’t see the double-digit growth that we’ve witnessed in previous years, lifetime mortgages remain one of the fastest growing parts of the mortgage market. Thousands of people across the country are unlocking value from their home, whether it’s to pay for home improvements, fund retirement or even to make a real difference to the younger generation who could receive money when it really matters; when they are attempting to get on the property ladder themselves, or already have the financial pressures of their own mortgage, and their own children.
“Over the last few years, lenders like Legal & General have driven change in this market to make equity release a much more viable option for consumers, including driving down interest rates and providing more options and flexibility for interest-only borrowers. Now, innovation has created new solutions like equity release that pays out as a monthly, fixed income and optional payment lifetime mortgages which have given borrowers much more flexibility in how they use their property wealth.
“With around £1 trillion of housing wealth in the hands of Britain’s over-55s, there is still potential for this marker to be much bigger. At Legal & General, our mission is to continue innovating and delivering choice for consumers so that we can help more people to enjoy the varied, colourful retirement they want.”
