Debt management, remortgaging, and gifting are driving the equity release market towards new territory after customers took out £1.049bn in property wealth in the three months to the end of September, according to data from equity release adviser, Key.
The total value of equity released rose by 18.8% from nearly £884 million in the third quarter of 2020. However, the number of equity release plans taken out decreased by 3.2% year on year to 10,333 (10,671 – Q3 2020) remained below pre-pandemic levels (11,772 – Q3 2019). With big-ticket items such as debt management and gifting behind nearly two-thirds of the equity released in Q3 2021, these choices are driving the market as customers with more discretionary needs continue to consider their options.
Total equity released in the first nine months of 2021 at £2.989 billion is just short of the £3.4 billion released in both 2020 and 2019 putting the market on course for a record £4 billion. Around 75% of customers took out drawdown plans in the three months with the average initial advance standing at £57,183 with customers still having the ability to draw a further £301.5 million.
The average customer is 70 years old which is an increase from 2020 – with 49% of those who take out equity release being between the ages of 65 and 74 years old.
Spending on ‘big-ticket’ items including remortgaging existing plans drove the market:
Customers on average released £101,593 in the three months – around 23% higher than the £82,827 in the third quarter of 2020 – highlighting the continued focus on ‘big-ticket’ items like gifting and debt management.
Nearly three-quarters of the money released (73%) was used for debt management and to help family and friends in the three months to the end of September. Around £588 million of the money released in the quarter was used to clear debts while more than two-fifths (42%) of the cash given to family and friends was used for house deposits while 36% was given as an early inheritance.
Using equity release for debt management has been part of the market for many years but more recently, we have seen people remortgaging their existing plans to benefit from recent innovation and the fall in rates. Key estimates that by the end of September the market transacted 3,000 remortgage cases with customers on average moving borrowing of £134,597 from a rate of 5.1% to 3.6%.
Will Hale, CEO at Key, said: “Against the backdrop of a pandemic, the equity release market is on track to break the £4 billion barrier and potentially even touch £4.5 billion by the end of the year. This performance demonstrates how modern equity release products are now embedded within the mainstream financial services market, offering low rates and flexible features to address a wide range of different customer needs and wants
“This year we’ve seen increasing numbers of people using equity release to support families, manage their current borrowing and use the historically low rates to remortgage their existing equity release plans. Whilst many plans have been put on hold during the pandemic, we also expect to see the return of people looking to boost discretionary spending as they look again at how to fund their later life ambitions.
“Equity release and other later life lending products can offer a solution to many of the opportunities and challenges that people encounter as they approach and move through retirement However, it is vital that people consider all their options and get specialist advice to ensure they are making smart sustainable choices.”
Across the regions:
Key’s Market Monitor, which analyses data reflecting the whole market, shows that almost every region saw the value of property wealth released increase with only Scotland and the South East recording small falls.
Northern Ireland lead the way with the value of property wealth released more than trebling while Wales and East Anglia saw growth of 74.7% and 61.6% respectively while all other regions saw double-figure rises.
From a modest start, Northern Ireland was also the strongest performer for plan sales which doubled compared with the third quarter of 2020 while Wales, Yorkshire & The Humber and East Anglia all recorded double-figure increases. Sales however dropped in five regions with the North West recording the biggest fall.
Claire Singleton, CEO of Legal & General Home Finance, adds: “These figures highlight the increasing popularity and growth of the equity release market, which is on track to reach over £4 billion by the end of the year and something we expect will continue to grow in 2022, particularly if house prices still rise.
“Lifetime mortgages have long been used to support debt management and gifting, but at Legal & General Home Finance we are also now seeing early indicators that people are returning to aspirational spending that was popular pre-pandemic, with a resurgence in borrowing to support travel and family celebrations.
“The pandemic prompted many customers to re-evaluate their finances. For homeowners, equity release has provided a flexible solution to access additional wealth, thanks to an increasingly diverse range of products on offer.”