Record property wealth sees average equity release customer draw £125k from their home in 2021

The pandemic property boom has seen average equity release customers draw the equivalent of more than seven years of retirement income from their home in 2021, according to the latest data released by the Equity Release Council.

Related topics:  Finance
Property Reporter
4th April 2022
pensioner

As UK property wealth reached a record £5.2tr at the end of last year, the equity release market saw customers withdraw £125,000 on average as a single lump sum or via incremental ‘drawdowns’.

The Council’s analysis shows this sum is equivalent to more than seven years of a single pensioner’s typical net income and nearly four years for the typical pensioner couple.

Low-interest rates by historic standards and increasing product flexibilities mean customers can access potentially life-changing sums with more ways of managing the overall cost of borrowing in later life.

The market report shows product pricing crept up year-on-year from 3.95% in January 2021 to 4.16% in January 2022. However, more than 300 products are now available at rates of 4% or less, while the average customer secured a rate of 3.39% on their loan during H2 2021.

Uptick in products allowing penalty-free part repayments and downsizing protection

The second half of the year also saw more products adding the option to make voluntary penalty-free partial repayments, with 85% of products allowing this in January 2022 compared with 68% in July 2021.

From 28 March, this feature has become a fifth ‘product standard’ or prerequisite for all products recognised by the Council. It enables customers to reduce their loan sizes and borrowing costs where possible if their circumstances change, without committing them to regular repayments or risking repossession.

The percentage of products offering downsizing protection – giving customers the freedom to repay their loans in full, with no early repayment charge, in the event of downsizing – also increased from 50% in July 2021 to 63% in January 2022.

Lifetime mortgages make a significant yet stable contribution to later life lending

Overall, equity release lending activity for 2021 was six times greater than in 2011 (£4.8bn vs. £789m) with product choice having more than trebled in the last three years alone (665 in Jan 2022 vs. 202 in Jan 2019).

This forms part of a wider increase in borrowing activity among older homeowners, with lifetime mortgages making a consistent contribution to later life lending activity – accounting for around a quarter of new loans taken out by customers aged 55+ and three-quarters of those taken out by customers aged 65+ since the end of 2019.

The Council’s analysis of wider property market activity shows the total value of UK housing reached £6.7 trillion at the end of 2021, rising by £1.6bn each day on average or £1m every minute.

When mortgage debt is discounted, it leaves the nation with an unprecedented £5.2 trillion of property wealth, equivalent to £211,000 per household.

As equity release products grow in popularity as a way to access these funds, the Spring 2022 report includes five considerations for consumers to help manage later life borrowing costs.

David Burrowes, Chair of the Equity Release Council, comments: “After years of putting money away in bricks and mortar, older homeowners are turning the tables and taking funds from their homes in order to boost their retirement income, meet one-off costs and gift a living inheritance to family.

“With £1 million added to the value of UK housing every minute last year, the options afforded by property wealth will feature in many people’s thoughts as they make financial plans for the future.

“The equity release market’s return to growth is part of a wider pick-up in later life lending activity, and the flexible design of modern lifetime mortgages gives customers more ways to manage their finances and access life-changing sums of money at a lower cost.

“While many aspects of today’s market have been transformed in the 30 years since consumer safeguards were first established, firm foundations remain in place so no customer need ever worry about owing more than their home is worth and can rest easy in the knowledge they can remain in their home for life with no threat of repossession for not keeping up with repayments.

“As we move into an environment of growing cost-of-living pressures, the importance of rigorous advice will be greater than ever so that decisions to release equity continue to provide long-term satisfaction as well as short-term relief.”

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