19% of equity release plans taken out in 2021 was used to support family while 38% were used to repay residential mortgages or remortgage existing equity release borrowing. This major new trend developed as existing customers realised how they could benefit from the lower rates and increased flexibility offered by modern products driving a 174% year on year surge in rebroking.
Size of withdrawals is driving the market
While the number of plans taken out increased by nearly 4% in 2021 to 41,991 (FY 2020 – 40,470), it was still lower than the record reached in 2018 (47,081) and the 28% growth in the value of the market was driven by customers releasing larger amounts.
Focused on supporting wider families and managing debt, over-55s released an average £104,792 worth of housing equity via equity release during 2021 – an increase of 23% on the previous year and 37% higher than 2019 before the pandemic started.
Remortgaging and Drawdown:
Remortgaging became much more important in 2021 with around 5,295 customers moving for lower rates compared with 1,930 remortgage cases in 2020. The average customer moved a balance of £135,529 from an interest rate of 5.1% to 3.6% and the volume of cases accounted for 22% of all equity released used for debt repayment.
Existing customers took out an additional £494.48 million last year in drawdown and further advances and customers used drawdown plans to reserve a further £1.32 billion during 2021. Drawdown plans accounted for 74% of sales last year compared with 70% in the previous year with lump sum mortgages accounting for 26%.
Spending has shifted
The number of customers using property wealth to pay off mortgages nearly doubled from 20% in 2020 to 38% last year and the numbers using it to pay off unsecured debt remained steady at around 27%. The growth of the amount used to repay mortgages was driven in part by the significant uplift in the number of people remortgaging equity release plans to access new features, improve interest rates and increase borrowing.
However, the amount of money used to pay unsecured debt dropped from 18% to just 6% suggesting older homeowners were able to use their incomes to pay off debts as COVID-19 restrictions hit spending. Spending on holidays continued to fall from 23% in 2020 to just 7%.
Across the regions
Key’s analysis shows all regions apart from Northern Ireland saw a rise in the value of new equity released in 2021 with 10 recording double-digit increases. The biggest year on year rise was in Wales where the total value of new equity soared by 59% followed by London with a 48% increase.
Plan sales increased in eight of the 12 geographic areas tracked, but the only significant drop was in Northern Ireland where sales fell by 17%. The South East, West Midlands and Scotland all recorded strong increases in the total value of equity released despite plan sales falling.
The strength of the housing market in the South East and London meant those regions accounted for nearly half of all equity released during the year despite accounting for only a third of plans sold.
Will Hale, CEO at Key, said: “To record this type of growth against the backdrop of a pandemic suggests that the equity release market is starting to live up to the potential that we have been highlighting for so long and is becoming a true later life lending market.
“We’ve seen a subtle shift away from discretionary spending with more customers focusing on using their housing equity to improve their financial resilience by repaying or remortgaging borrowing while others have concentrated on supporting family. The growing desire to move existing equity release borrowing to a better rate has been a feature of 2021 and we see this becoming an increasingly normal part of the market.
“Looking ahead, with customers having focused on meeting pressing needs over the last 24 months, we anticipate that there will be pent up demand for discretionary spending amongst some over-55s who have found that their retirement is currently very different from what they anticipated. However, this is likely to be tempered by inflationary pressures and increasing numbers of customers seeking to boost their or their families spending power to meet rising household bills.
“The later life lending market is able to support these wide-ranging needs and this will be good for consumers, the market and the wider economy as we move through 2022. As an industry, we must rise to the challenge of supporting our clients by continuing the evolution that has seen significant growth in innovative products and options for customers.”
Stuart Wilson, CEO of Air Group – the later life services platform, said: “One of the key takeaways to come out of this Market Monitor, is the sector’s growing maturity when it comes to refinancing and rebroking.
"We are a long way past the point where initial equity release borrowing is ‘for life’ and it’s clear that both advisers and their clients have been benefiting from the sector’s competitiveness, particularly in terms of lower rates but also in terms of the flexibility now offered by many lenders. A 174% increase in rebroking is clearly significant and provides advisers with something akin to a new front for activity, in terms of supporting existing clients and ensuring they are on the right product at regular intervals.
“The other point to make is around the increase in average loan size – up 23% to close to £105k – and the use of that money, predominantly in order to pay off debt and to support family members.
"In a sense, we’re seeing uses for equity release at both ends of the mortgage ‘life span’ with customers increasingly using the products to pay off mortgages, while at the same time helping family with deposits in order to help them on the ladder. There is much to be positive about here, as we have a growing acceptance that the home is an asset that can be utilised in a variety of ways to provide all kinds of solutions. These figures should provide all later life lending stakeholders with a positive boost, particularly advisers, as they reveal a strong foundation for business and growing demand and need amongst consumers.”
