- 58% of new plans taken out between the age of 65 and 74 in H1 2015 – the highest percentage since tracking began.
- Clear characteristics emerging between ‘drawdown’ and ‘lump sum’ customers.
- Average rates have fallen by more than half a percentage point since December 2014.
Homeowners aged 65-74 were the driving force behind the growing popularity of equity release products in the first half of 2015, accounting for a record share of new plans, according to the Autumn 2015 edition of the Equity Release Market Report.
The in-depth report from the Equity Release Council (The Council) shows this age group saw a 5% increase in customer numbers from H1 2014 to H1 2015. This compares with a 2% annual increase across the market as a whole, as more people use their housing wealth to boost their finances in later life. The value of total lending also rose in the period H1 2014 to H1 2015: up 11% from £641m to £710m.
Customers aged 65-74 took out 58% of new plans agreed between January and June this year, up from 56% in the equivalent period last year to the highest share since tracking began in 2011.
One in four new plans taken out in H1 2015 were by customers who had passed their 75th birthday, with 22% aged 75-84 and 3% aged 85+. Customers aged 55-64 accounted for 18% of new plans, down from 20% in H2 2014.
The latest Market Report shows how more than 10,000 new equity release plans have been agreed in each of the last four half-year periods. Comparing H1 2015 with H1 2007 – which remains the busiest first half on record – illustrates how drawdown lifetime mortgages are established as the majority preference.
These accounted for 65% of new plans agreed in the first half of this year, compared with 44% during the equivalent period of 2007 when drawdown products were relatively new. In contrast, 35% of new plans in H1 2015 were lump sum mortgages, compared with 51% in H1 2007.
Differing characteristics of lump sum vs drawdown customers in H1 2015:
Analysis by The Council suggests there are a number of characteristics that distinguish between customers based on their product preferences. Drawdown products are taken out between the age of 71 and 72 on average. These allow people to dip into their housing wealth as and when they need it, which can provide an extra source of income and limits the overall cost of the loan as interest is only applied once funds are withdrawn.
These products typically see customers opting for smaller initial withdrawals of housing wealth, averaging £46,958 in H1 2015. This was down by 2% (£872) from H1 2014 despite the average customer’s house price rising 7% over the same period (from £283,836 to £304,340), potentially giving them more equity to draw on.
Customers seeking a lump sum are typically closer to the old default retirement age of 65, and have seen their average age drop from 68.8 in H1 2014 to 67.7 in H1 2015. These customers typically withdraw a larger amount – averaging £77,494 in H1 2015 – which can help with bigger items of expenditure as they enter retirement, such as clearing an existing mortgage or other borrowing.
Average age of customers for new plans agreed
|All customers||Lump sum||Drawdown|
The Market Report also shows a fall in the average rate for equity release products that meet The Council’s standards of consumer protection since the end of last year. In contrast to residential mortgages, these products guarantee the right to tenure and protect customers from ever owing more than their home is worth. July’s average rate of 5.97% was more than half a percentage point (0.55%) lower than December’s 6.52%. The lowest rate available currently is 5.13%.
The report also sets out the standards of advice and protection in place to safeguard consumers, and illustrates some of the potential impacts of house price changes and interest over time.
Nigel Waterson, Chairman of the Equity Release Council, said: “The retirement landscape has changed considerably in the last year alone, but it remains a challenge for many people to save enough to support the lifestyle they aspire to. Appetite for using housing wealth as a source of funding in later life continues to grow, and equity release is playing an increasing role in helping people – especially those who are asset-rich and cash-poor – enjoy a better quality of life beyond the age of 55.
“As demand grows, it is vital that efforts are made to continue to uphold rigorous standards of financial and legal advice across the industry. Along with product protections, these are fundamental to ensuring consumer confidence and positive outcomes. With drawdown products having emerged as the majority preference, more recent innovations mean customers can opt for products that protect a minimum inheritance or enable monthly interest payments to begin with. The prospect of more new providers and different funding options emerging will build on this and help the market to satisfy wider demand.
“Equity release has been transformed since the 1980s, and we are committed to continuing this process – as well as growing awareness of the products, how they work and the role they can play in helping people to plan their finances in later life.”
For more information, email: TWC.TheEquityReleaseCouncil@instinctif.com