The demand amongst the UK's older homeowners to unlock cash from their property for a variety of needs has seen little impact from the ongoing pandemic. The latest figures released by equity release adviser, Key, has revealed that an already resilient market ended the year on a high.
Against the backdrop of the ongoing global pandemic, we saw a strong end to the year with 9,930 people releasing over than £1.1 billion in Q4 2020. However, on an annual basis, there was 12.5% decrease in plan sales (40,470 in 2020 from 46,247 in 2019) and a 4.4% reduction in the amount released (£3.456 billion in 2020 from £3,595 billion in 2019) as customers focused on meeting pressing needs rather than discretionary spending.
This trend towards using equity release to refinance debt and support their wider families via gifting also saw the average amount released increase by 9.2% from £77,735 (2019) to £84,919 (2020). However, with house prices increasing by 6.43% over the last twelve-months, LTV’s remained at a modest 26% (25% - 2019) across all equity release borrowing and average interest rates fell to 2.8% in Q4 (3.15% in Q4 2019).
Drawdown remained the most popular product during the year accounting for 70% of all sales (with 73% in 2019). Having risen to 71 years old in 2014, the average customer age has remained remarkably consistent (72 years in 2019 and 71 years in 2020).
Supporting families and financial resilience remain the focus
With many advisers – including Key – encouraging clients to focus on meeting pressing needs rather than discretionary spending, equity release has increasingly been used to help wider families (22%) or refinance mortgage (29%) or unsecured (18%) borrowing.
With 59% making provision for ad hoc capital repayments, these products - with rates which start from 2.8% - can offer real flexibility to people as their circumstances evolve through later life and be of particular benefit to those who are juggling managing debt with limited retirement income.
Helping younger family members was also high up the agenda with £755 million being transferred between the generations in 2020. With the stamp duty holiday coming to an end, 43% of these gifts were earmarked for housing deposits and 26% for an early inheritance – some of which was no doubt used for other types of property costs.
Just 11% of the property wealth was spent on home improvements (17% in Q1 2020) and 3% on holidays (8% in Q1 2020).
Will Hale, CEO at Key, comments: “While 2020 is down on 2019, the fact that we have only seen a 4.4% drop in the value of equity released suggests that customer demand remains strong supported by the efforts of advisers, lenders and other service providers in this challenging year.
“Discretionary spending has fallen as equity release increasingly looks to support clients’ aspirations to help their families and make their finances as resilient as possible by refinancing debt. While most people aspire to reach retirement without any mortgage or unsecured debt, this is certainly not possible for everyone and equity release can help to take the pressure of these families while still providing avenues for repayment.
“With the end to the Stamp Duty Holiday on the horizon, it is also not entirely surprising to see that many older homeowners have taken the opportunity to pass wealth down the generations and help children or grandchildren onto the property ladder. While this may change as we head in 2021 and the holiday comes to an end, I suspect the desire to help families will remain a strong driver of this market in years to come.”
