With an ageing population and a prolonged period of rising property prices, it’s no surprise to see equity release growing in popularity.
The latest figures for the equity release market suggest a huge number of retired homeowners accessing wealth in their property, to help fund later life expenses.
Equity release can unlock the financial value of your property and turn it into a cash lump sum.
As a financial option, it allows homeowners over the age of 55 to access cash to spend while they are still fit and healthy, help fund a particular purchase like a holiday home, or provide a living inheritance for their loved ones.
New data from Key's Equity Release Market Monitor shows that retired homeowners released more than £3.4 billion of property wealth last year. 2019 ended on a high for the equity release sector, despite political and economic uncertainty making consumers cautious.
Nevertheless, the total value released declined 4% from the £3.6 billion accessed the year before, while the number of new plans taken out slid by 3% from 47,081 to 45,598.
The last three months of the year saw signs of a return to growth, with £921 million released compared with £887 million in the third quarter. There was also a rise in plan sales to 11,820 from 11,722 suggesting an increase in consumer confidence.
During 2019, homeowners released nearly £9.5 million of property wealth a day, but caution among consumers and the dominance of drawdown saw the average amount released decline marginally to £75,631 compared with £76,473 in 2018.
Sales of drawdown plans – which enable customers to manage their property wealth and leave cash to be taken later – accounted for 73% of the market last year compared with 64% in 2018.
The total market, including unused drawdown facilities, was worth £4.9 billion in 2019 compared with £5 billion previously.
In 2019, drawdown accounted for 73% of new business, up by 9% from 64% in 2018. As lenders are launching more products offering drawdown as a feature, there has been a rise in the number of products on the market.
While the latest products can offer some of the most competitive rates and flexibility, customers are leaning towards the products which have a drawdown feature.
Enhanced drawdown, which offers improved terms to customers with health or lifestyle issues, accounted for 20% of sales compared with 27% for lifetime mortgages in total (8% of which was enhanced).
In 2019, people looked to increase their financial resilience in retirement by releasing equity to clear existing mortgages (20%) while 29% used the money to pay off loans or credit cards.
The numbers of customers switching from existing equity release plans to take advantage of historically low-interest rates also rose to 5% in 2019 compared with 4% in the previous year.
Advisers are likely to continue to see growth in rebroking in 2020 with more than 300 products available and ongoing product innovation.
Two out of three of customers used some or all of the cash they released to improve their homes or gardens in 2019. While other customers are looking to age-proof their homes by installing the kitchen of their dreams to enable them to stay in their homes for longer
28% of customers helped out family from their property wealth in 2019, while almost a third were able to fund holidays with some of the money they released.
Will Hale, CEO at Key, said: "2019 has been a busy year for the sector, and there are now more funders than ever before in the market and more than 300 different plans as well as growing consumer interest. That said, we did not see the continued double-digit growth that we have seen in recent years as consumers – unsettled by current economic and political events - chose to defer decisions around how housing equity might help them in later life."
"Although we saw small year on year falls in the value and volume of equity release taken out, the last two quarters were more upbeat and we start the year with a positive headwind fuelling the belief that we will continue to see growth in the equity release market."
"There are more than 24 million over-55s in the UK, so market drivers remain strong and as consumer confidence grows we will increasingly see more people looking to take advantage of the innovative new products and continued low rates."
"Indeed, 2020 has the makings of a very interesting year for the equity release market, but we need to continue to focus on educating and engaging with key audiences to clearly highlight how housing equity can play a role in meeting the challenges that individuals and the country as a whole face."
“Boosting retirement income, helping people to pay for social care at home and helping the younger generation onto the property ladder are all positive outcomes delivered by taking a holistic approach to managing your assets in retirement."
To find out more about equity release and how it could boost your retirement income, contact Kellands today.
You have to get advice before releasing tax-free cash from your home.