Record breaking year sees equity release growth overtake other types of mortgage finance
A total of £1.24bn in housing wealth was unlocked by over-55s in H2 2016: 37% more than the £908m in H1 and 38% up on the H2 2015 total of £898m. This growth resulted in a record-breaking year for the equity release sector, with activity in 2016 surpassing the £2bn mark for the first time to reach £2.15bn and over 27,500 new plans agreed – the most since 2008. This coincided with the 25th anniversary of the first industry Standards being introduced to establish a safe and reliable market for consumers and confirms its growing appeal as a source of retirement funds. Measured by the value of lending, the market has almost trebled in size in the five years since £789m of activity was seen in 2011. The annual lending increase of 34% was double the rate of 2015 (16%), resulting from increasing consumer appetite and a growing range of providers, products and features appearing on the market offering historically low-interest rates. The fourth quarter of 2016 alone saw £670 million of lending, also breaking quarterly records.
With demand expected to increase as older consumers take an increasingly holistic view of their wealth and assets when making retirement and inheritance plans, the equity release sector is on course to become a more mainstream part of the mortgage finance and later life financial planning landscape. Back in 2006, there was one new lifetime mortgage plan agreed for every 27 homemover mortgages and 43 remortgages. Fast forward to 2016 and the balance has shifted to one new lifetime mortgage for every 13 homemover mortgages and 14 remortgages, as the option to unlock housing wealth beyond the age of 55 becomes increasingly important to older consumers.
Drawdown products remained the majority preference in 2016, with 65% of customers opting for these while 35% chose lump sum products and a small number took out home reversion plans. However, the balance shifted slightly over the course of the year. While 67% of new plans were drawdown in H1, this dropped to 63% in H2 as lump sum popularity grew from 33% to 37%. As a result, the growth of customer numbers in each segment of the market favoured lump sum over drawdown. Total lump sum plans for 2016 were up by 26% year-on-year to the largest annual total (9,652) since 2008. The total number of drawdown plans reached a new high of 17,822, but growth compared to 2015 was a more modest 19%. The number of products available on the market continues to grow, providing borrowers with greater choice and flexibility. Research by Moneyfacts found that the product range doubled between 2013 and 2016, with recent years bringing new features and flexibilities such as downsizing protection, capped variable interest rates and options to make monthly interest payments or annual capital repayments without incurring a charge.