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Older homeowners released more than £3.4 billion in property wealth last year with most of the money used to make their finances more resilient and help families via gifting, data from the UK’s leading equity release adviser Key shows.
Resilient Market Ends 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 Resilient 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, said: “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.”
Q2 was the low point of 2020
While equity release business does vary by quarter on a more typical year, 2020 was particularly choppy driven by the impact of the pandemic on not only systems and processes but also customer demand. Q2 when the first lockdown hit saw only 8,374 plans taken out which was a 45% quarter on quarter fall and a stark reminder of the real impact on the later life lending market.
However, things improved in Q3 and Q4 as advisers, lenders and service providers rolled out new processes and customer’s confidence increased. That said, we have still seen extended lag times (vs business as usual conditions) across all elements of the process so the FY completion numbers are perhaps not fully reflective of customer demand in H2 and it is likely that some of this demand will help drive completion volumes in Q1 2021.
Q1 Q2 Q3 Q4
Volume 11,495 8,374 10,671 9,930
Value £949 m £521m £883m £1.1b
Will Hale, CEO at Key, said: “The national roll-out of vaccinations is providing some optimism but it is still hard to predict when the market will return to more normal trading conditions. At the moment, our focus needs to be on finding the right outcome for each customer – encouraging them to think about their long term needs and ambitions.
“Less than one in five of those who approach us end up taking out equity release. Instead, they may look at downsizing, retirement interest-only mortgages or later life mortgages – or simply decide that while equity release is right for them, now isn’t the time to access their housing wealth. Specialist advice supports all these options and is vital to ensuring that customers are confident that they have made the right choice for their individual circumstances.
“That said, demand has been resilient and pressure on household finances will extend far beyond the current health crisis so we need to think big. As an industry, we must rise to the challenge of supporting our clients by evolving into a true later life lending market that has more innovative products and more options for customers.”
Across the regions
Key’s Market Monitor, which analyses data reflecting the whole market, shows the South East was the only region to see a rise in the value of new equity released during 2020 with an increase of 1.3% to £1.025 billion. The total value released in the year was unchanged in the South West at nearly £380 million. In most regions the year-on-year drop in value released was in single figures, but Wales suffered the biggest fall at 25% and East Anglia experienced a decline of more than 18%.
Plan sales fell in all regions although the decrease was marginal in the North East at nearly 1%. East Anglia, Wales and London all saw higher than average falls. The North West was the third-highest selling region in the UK ahead of London which dropped to fourth.
However, 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. The table below shows the breakdown across the country:
Region Number of plans sold 2020 % change in 2019 Total value of new equity released 2020 (£ million) % change on 2019 (£ million)
South East 9,786 Down 12.5% £1,025 Up 1.3%
London 3,907 Down 18.6% £635.948 Down 4.1%
South West 4,420 Down 9.0% £379.601 Unchanged
West Midlands 3,649 Down 7.2% £248.726 Down 3.5%
North West 4,003 Down 7.5% £236.961 Down 6.8%
East Midlands 3,366 Down 11.1% £224.412 Down 4.7%
East Anglia 2,647 Down 23.6% £189.334 Down 18.6%
Yorkshire & The Humber 2,685 Down 15.8% £154.767 Down 11.8%
Scotland 2,436 Down 7.2% £142.748 Down 3.6%
Wales 1,803 Down 20.3% £101.902 Down 25.5%
North East 1,357 Down 0.9% £74.351 Down 3.3%
Northern Ireland 412 Down 12.9% £22.684 Down 4.3%
UK 40,470 Down 12.5% £3.436 billion Down 4.4%
Anyone looking to release equity from their home can get Key’s independent guide to equity release by calling 0800 531 6027 or visiting https://www.keyadvice.co.uk/equity-release/is-it-right-for-me
Notes to Editors
* Key market data for 2020 Q3. The Monitor uses Key’s data to reflect the market as a whole. The data reflects both members and non-members of the Equity Release Council and provides the most detailed analysis of the equity release sector. The figures reflect new customers and the equity they released rather than any ongoing withdrawals via products such as drawdown. Nationwide House Price Index (https://www.nationwide.co.uk/about/house-price-index/house-price-calculator) was used for the house prices.
For more information or to request a case study, please contact:
Director of Public Relations and Public Affairs
Key Retirement Group
E-mail: [email protected]
• Part of Key Group, Key is the UK’s largest independent equity release adviser – committed to high levels of customer service and the belief that good advice is key to ensuring people make smart sustainable choices around how they use their housing equity.
• Last year, Key split its advice proposition into separate brands – Key Equity Release, offering fee free advice on more than 80 equity release products and The Equity Release Experts, which provides a whole of market service. This evolution is designed to offer customers real choice as to the service that’s right for them without compromising on quality.
• With over 60 industry and consumer awards under their belt, the Key team offer advice on equity release, later life mortgages and retirement interest-only products. The company also provides support with estate planning including wills and lasting power of attorneys.
• Key is committed to putting customers at the heart of what it does and has a score of 4.9 / 5.0 from over 15,000 scores on the independent review site, Trustpilot.
• Key is committed to being independent, transparent and straightforward.