Equity release reaches another record in UK as home owners cash in

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The total value of equity release lending in the UK reached a new record in the third quarter of 2016 of £571.6 million, up 26% year on year.

The latest figures from the Equity Release Council suggest that more and more home owners now see releasing funds from their property as an important part of their financial planning later in life.

The increase leaves total annual lending for 2016 on course to break through the £2 billion mark for the first time, having reached £1.48 billion in the first nine months of the year.

A breakdown of the data shows that from July to September 2016 some 7,414 new equity release plans were taken out, an increase of 11% from the previous quarter and up 23% year on year and it was the first time the number of new plans exceeded 7,000 since the fourth quarter of 2008.

The figures also show that lump sum lifetime mortgages proved popular in the third quarter with market share increasing from 33% of new plans to 37%. The 2,773 new plans agreed was an increase of 26% quarter on quarter, the highest number since the fourth quarter of 2008.

The total value of lump sum lending rose by 26% quarter on quarter from £208.8 million to £264.1 million, up 44% year on year and the largest amount for more than a decade.

Overall, drawdown lifetime mortgages accounted for 62% of new plans, the smallest market share since the fourth quarter of 2010 but this sector remain the most popular category and the 4,632 new drawdown plans taken out in the third quarter of 2016 was the highest number seen since this type of product appeared on the market. This is also an increase of 4% from the previous quarter and 21% year on year.

‘Coming 25 years after the first industry standards were introduced for equity release, these record lending figures further highlight the appeal of using housing wealth as part of the solution to funding later life,’ said Nigel Waterson, chairman of the Equity Release Council.

‘Product innovation has played a huge role in the growing appeal of equity release to a range of customers, including the growing number of homeowners with interest only mortgages due for repayment. The range of features available now give people the option to choose inheritance protection, downsizing protection, monthly interest repayments or voluntary capital repayments when they opt for a lifetime mortgage,’ he pointed out.

‘At the same time, customers automatically receive three layers of protection encompassing regulated financial advice, clear product standards and independent face to face legal guidance,’ he explained.

‘Increased competition and new entrants to the market have helped to lower the costs of equity release dramatically in recent years, making it even more attractive to customers. Indeed, average equity release interest rates fell further than any other category of mortgage product during the first half of 2016 with independent research showing customers have never been better served in terms of products and rates,’ he added.

Jeff Bromage from Saga Money, which specialises in the over 50s market, agreed that people are increasingly seeing the equity they have built up in their home as a key part of their funding for retirement.

‘For many this is a lifestyle decision, they want to remain in their family home and continue living the way they are used to. We have seen the average amount people are releasing increase by 10% this year,’ he said.

‘Paying off the mortgage remains the main reason people are releasing equity, accounting for 27% of the value of funds released, the second most popular reason for releasing equity is to spend on home improvements, accounting for 20% of funds released,’ he added.

According to Dean Mirfin, technical director at Keyretirement, believes that equity release is now firmly established as a major part of the retirement planning market. ‘As retired home owners increasingly become aware of the wide range of options available to them to enhance and improve their retirement finances we expect the market to break through the £2 billion barrier with ease,’ he said.

‘Increased competition, lower rates and a focus on product innovation has made equity release an attractive option for retired homeowners who continue to be squeezed by both historically low annuity and interest rates,’ he added.

Alice Watson, head of marketing at Retirement Advantage Equity Release, pointed out that the numbers of over 55s with significant wealth tied up in assets like property continues to rise.

Her firm has found that the most popular reasons for taking out an equity release loan is to clear existing mortgages, cited by 45% of their customers in the third quarter of 2016, followed by 41% for home and garden improvements while other uses include holidays, buying a car, gifts to family and buy to let investment.

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