There was £1.06bn of equity release activity in Q1 before lockdown took effect, data from the Equity Release Council shows.
This represents a rise of 14% from the £936m recorded over the same period last year.
It was driven by strong consumer confidence in early 2020 after the general election.
David Burrowes, chairman of the Equity Release Council, said: “These figures reflect the return of consumer confidence to the broader UK economy at the start of the year, after December’s election promised to restore certainty before coronavirus took hold.
“Pent-up demand from 2019 meant homeowners continued to look to property wealth in growing numbers for later life finance in January and February, backed by strong consumer protections and increasing product flexibility.”
There were 11,079 plans agreed in Q1, the largest total in the first quarter since records began in 1991.
Drawdown lifetime mortgages made up 57% of plans taken out, with lump sum mortgages accounting for 43%.
Claire Singleton, CEO of Legal & General Home Finance, said: “The current Covid-19 environment clearly presents challenges, and it’s currently too early to gauge the impact it will have on demand.
“However, we believe the fundamental drivers of growth remain, and we expect the upward trajectory to continue. Indeed, unlike many other areas of the housing market, equity release has not stalled and the industry has adapted well to the challenges of social distancing and remote working.
“However, it must be made clear that equity release is not an ‘immediate needs’ product and therefore requires careful consideration. Much has changed since the start of the year, making it even more important to pause, take advice and avoid reacting hastily to financial concerns.”
Jonathan Barrett, partnerships director at digital retirement solutions fintech, ABAKA said: “While the equity release market is now facing the challenges posed by coronavirus and the impact of lockdown, there is a clearly still pent up demand from consumers for lifetime mortgages and other later life lending products.
“Advisers and providers will all need to be ready to manage that demand from consumers when we come to the end of this crisis, but the advice gap the sector is facing could prove to be a bottleneck.”
He added: “Recent rule updates from the Equity Release Council which now allow for remote advice mean advisers will be having to adapt more quickly to the digital world.
“Tools like AI-powered chatbots can also help support this transition by answering questions from potential customers, so that advisers can focus on supporting their clients through the equity release journey.”
The equity release market’s rapid growth came to a halt in 2019, with the total staying flat compared to 2018.
There was £3.92bn of housing equity withdrawn, down slightly from £3.94bn in 2018, figures from trade body the Equity Release Council show.
However, the market has still grown four-fold in the last decade, with the amount withdrawn rising from £945.97m in 2009.
David Burrowes, chairman of the Equity Release Council, said: “After a period of steady growth, the market has reached a point of consolidation in 2019 with lending volumes in line with 2018.
“The sector enters 2020 in a strong position with updated standards and a greater number of diverse members signed up than ever before.”
Despite the slowdown the final quarter of 2019 was one of the busiest quarters on record, with more than £1bn released.
Alice Watson, head of marketing, insurance, Canada Life, expects the equity release market to continue growing.
She said: “2019 was a difficult year for most parts of the UK economy and that’s reflected in today’s ERC stats.
“But the start of a new decade could herald further expansion for the equity release market, if it builds on the successful foundations of the previous decade: strong customer safeguards, adviser support and a relentless focus on giving customers the flexibility and certainty they want.
“There is still much work to be done – customer misconceptions and negative perceptions of equity release continue to hold back the industry. The industry must work together to overcome these obstacles to growth.
“The strong finish to 2019 is a positive sign for the industry and coincided with a time when wider economic trends indicated a more positive picture for the UK economy. Should these trends persist, and the industry continue to offer innovative products, the market is all but certain to return to expansion in 2020 and beyond.”
There was strong growth in lending by equity release firms and other specialist mortgage lenders last year, as the demand for later life borrowing increases, according to trade association UK Finance.
In a blog on its website, it said gross mortgage lending totalled £268 billion last year, up 3% on 2017.
Patterns of borrower incomes have become more complicated, it said, partly driven by a growth in people being self-employed as well as an ageing population with more people working for longer.
The blog said: “In this changing environment, lenders who have more bespoke, often manual, underwriting processes are well placed to help these customers.”
UK Finance’s figures show lending by equity release specialists increased by £800 million between 2017 and 2018.
And its figures relating to older borrowers show 78,514 new residential loans were made to borrowers aged over 55 last year, with 42,866 new equity release loans made to this age group.
Equity release covers a range of products which allow people to access the equity – or money – tied up in their home.
But while an immediate cash boost could be useful in some situations, there are important longer-term factors to consider.
For example, borrowers may find they might not be able to rely on their property for money needed in retirement, or that they will have less than they wanted to pass on as an inheritance. Borrowers may want to take independent financial advice when weighing up their options.
UK Finance said that, in a sign of growing competition for borrowers’ business generally, 70 lenders each provided more than £50 million of mortgage lending to home owners and landlords in 2018, up from 65 lenders the year before.
Lloyds Banking Group remained the UK’s biggest mortgage lender last year, followed by Nationwide Building Society in second place.
The blog, written by UK Finance analyst Callum Bilbe said: “Lenders have seen a higher demand for mortgages from older borrowers in the last few years, extending their maximum age criteria and adapting underwriting for those whose income in later life is more complex.
“This has facilitated a competitive and expanding mainstream later life lending market.
“This is also evident within the equity release mortgage market, where we continue to see strong growth. This is driven in part by investment from firms in the life and pensions space, for whom the long-term income stream from equity release mortgages aligns well with their liabilities.”
you’re looking to get your hands on cash to fund your lifestyle after 55,
equity release can be one of the options you may want to consider. Like all
finance products, equity release comes with its positives and negatives – and
that’s exactly what we’ll discuss in this handy, simple guide to understanding
equity release, along with useful tips from our experts.
Planning for your retirement can be a
seriously daunting task – so much so that a significant share of Britons never gets
around to doing it. But that’s not it. More often than not, your savings,
investments and retirement funds, even when put together, may just fall short
being enough to fund your lifestyle.
On average, UK seniors need £27,000 or more to lead a comfortable lifestyle. Given the ever-increasing costs of healthcare and leisure, it’s safe to assume that this number will go up faster than most retirees and seniors can catch up with. This – despite the fact that many seniors strive to save a good deal of money each year – is a sign of worry. In fact, in April 2019, the UK households, companies and the government all went in deficit together – something that’s never happened before.
If you find yourself in a situation
where you need more cash to meet the monthly requirements, the obvious choice
will be to downsize. If you don’t want to downsize, equity release can be a
viable alternative – provided that you know what it is, how it works and what
the potential downsides of getting into such a contract can be.
What Is Equity Release?
Equity release is a way of freeing up the
value of your home without having to move. By and large, it’s a fairly simple
concept – you give up partial/full equity and you get cash in return as a
lumpsum or in monthly instalments.
Equity release allows you to forgo the
inconvenience/inability to move. But keep in mind: you’ll need to understand
the finer details.
Equity Release: Key Points
The cash you’ll get upon
releasing the equity will be tax free. You’ll be free to utilise it as you want
Equity release options are
available to homeowners who are 55 years of age, or older. Home reversion plans
are available to seniors who are 65 years of age or older.
Let’s now move on to discussing a few
important equity release tips from our in-house experts, lenders and industry
1. Weigh Other Options First
Equity release, at the end of the day, is a
mortgage you raise by keeping as security your share in your home. So, as is
the case with all other mortgages, it’s advisable that you are aware of your
The most obvious one would be downsizing. If
you’re in good health and have no trouble making the move, downsizing can save
you a great deal of money. It can not only unlock the full market value of
your home, but it’ll also allow you to cut down on future maintenance expenses
and higher property taxes. If not, you can think about renting a portion of
your house or converting it into an HMO (this will, of course, need
investment). If you want to learn more about how HMOs work, do go through our HMO finance
In addition, you should explore options
like utilising your savings and investments, if that makes financial sense in
the longer run.
2. Understand And Be Aware Of Your Monthly Expenses
Later life care is a sensitive issue, and
yet very few people try to address it head-on. The first rule of successful
money management is to be aware of your expenses. So, before you decide that
equity release is the way you want to go, you need to be very sure of how much
is needed to fund your lifestyle including leisure and luxury.
Some important aspects are non-negotiable.
For example, if you need to plan for home care, you need to take into account
the fact that home care professionals can charge you up to £30 per hour. In
addition, if you wish to fulfil your travel/vacation goals, you’ll want to have
at your disposal upwards of £5,000 in free cash each year.
This is just to show that when you
calculate all your expenses correctly – with enough leeway for miscellaneous
and incidental outgoings – you will be in a better position to decide whether
you need to release equity at all (and how much, if you need to).
Important – Equity Release May Affect Certain Benefits
Since equity release concerns homeowners
aged 55 or more, it’s important to consider its impact on some of the benefits
you may be receiving.
Going ahead with equity release means that
there is a significant change in your affordability. With free cash
lying in your bank (or a monthly stream of income guaranteed over a period of
time), your finances assume a whole new shape. What this means is that there is
a possibility of this having a direct impact on means-tested benefits you are
presently entitled to receiving.
Understanding What Means-Tested Benefits Are
Means-tested benefits, in the simplest of terms, are the benefits you receive as a result of being in a certain financial position of advantage/disadvantage.
For example, couples whose weekly income is lower than the present benchmark of £255.25 may receive Pension Credit (a means-tested benefit).
Which Benefits Does Equity Release Impact?
In most cases, we’ve observed that equity
release impacts Pension Credit and Council Tax Reduction.
As we stated in the earlier point, if releasing equity moves your weekly income above the benchmark, your Pension Credit benefit may get affected. Similarly, Council Tax Reduction presently allows pensioners with capital smaller than £16,000 certain tax concessions. These may no longer be applicable if releasing equity takes your capital over £16,000.
Calculate The Cost Of Your Equity Release Mortgage
We mentioned earlier that every qualified
broker will provide you with a detailed breakdown of their fees and
commissions. These will be the upfront and one-off costs of releasing your
equity. The long-term costs will, however, be determined by the type of equity
release you choose and the interest rate on offer.
Typically, equity release mortgages are
more expensive than regular mortgages. For example, our lenders can offer you
equity release quotes with interests rates up to or
lower than 5% (a representative number).
Let’s assume that you’re 60, your property
is worth £150,000 and you want to release a third of your equity to convert it
into a lifetime mortgage worth £50,000 (the one that will last your lifetime).
Assuming that the lender charges you
interest at 5% per year, here’s what the breakdown of costs will look like over
the next 15 years.
As you can notice, in this case, the
principal doubles roughly every 14 years. That, indeed, is a steep climb when
compared to regular mortgages. This aspect of equity release should be given
due attention when you’re applying for equity release offers.
Additional Costs You Should Expect
Keeping aside the brokerage and commission,
you will need to arrange for additional arrangement costs.
These usually vary from one case to
another, and the typical ones include solicitor fees, valuation fees,
administration charges – not to mention the stamp duty on the agreement. Many
lenders offer to pay for these costs by making necessary deductions from your
How Much Should You Borrow?
This, of course, is your call. Lenders on
our panel offer both lifetime mortgage and home reversion plans that can be
customised to fit your requirements. That, however, really isn’t the issue
It’s essential to understand here that –
thanks to relatively higher interest rates – equity release mortgages become
more expensive over time. The longer you borrow for, the more you’ll pay – it’s
as simple as that.
Hence, it’s advisable that you borrow only
the amount that you really need and think is adequate to see you through. If
you can compartmentalise your requirements, you’ll know what the pressing needs
You can always release more equity at a
later date or consider structuring a drawdown lifetime mortgage plan that
allows you to draw cash from your equity as and when you need to.
A Lump Sum Or Monthly Income?
This is another important consideration.
Most lenders are happy to let you decide
the mode. A lump sum allows you to take care of major expenses right away
(think medical/care bills, other unpaid bills, outstanding loan/mortgage
payments, gifting money to your loved ones or buying a new car). You can also
choose to use this cash to finance your vacations and other leisure activities.
On the other hand, monthly income makes
sure that you’ll have a reliable, guaranteed stream of income to take care of
your regular expenses each month.
At the end of the day, it all boils down to
what your requirements are and how you want to go about spending your money.
Can You Make Monthly Repayments?
An average equity release case will go
through the borrower’s lifetime without any monthly repayment being made. This
is the most convenient and common mode of operation for equity release
However, some lenders may allow you to make
monthly repayments towards the interest. This means that you keep the mortgage
active by repaying the monthly interest and making sure that – in the long run
– the mortgage turns out to be much cheaper.
This is better explained with an example.
We’ll carry forward the same numbers from our previous example.
We saw that over ten years, including the
compounded interest, the mortgage value will swell to £81,444 from £50,000. In
other words, the cost of mortgage will turn out to be £31,444 over ten years.
If you, however, were to pay the interest
off each month, the same cost will come down to £25,000.
Will You Be Able To Leave An Inheritance?
It’s a question that’s very important to many
borrowers. If you want to pass your assets on to your loved ones, you’ll need
to understand that releasing equity means that there’ll be lesser value for
them to inherit.
If you want to make sure that you leave a
certain amount as inheritance, you can make necessary arrangements by adding an
inheritance protection clause to your equity release plan. This may, however,
bring down the mortgage principal.
Can You Transfer The Equity Release Plan?
Despite releasing equity, many borrowers
feel the need to downsize anyway. Such a scenario warrants an important
question – can you transfer an equity release agreement from one property to
The answer depends entirely on the lender’s
policies and the terms of agreement. It’s best to have this aspect settled
while drawing up the equity release plan.
Assess The Property Market
Since every equity release plan is
essentially tied to the market value of your home, the overall property market
plays an important role in how much you’ll have to pay back.
If the market value of your property goes
down, you’ll owe much more to the lender. This, however, only applies for
lifetimes equity release mortgages. Home reversion plans make your position
more or less immune from market ups and downs.
With Caution And Care, You Can Make Equity Release Work!
Releasing equity is an important decision and should be taken with due deliberation and care. You may contact the Equity Release Council for in-depth information about equity release products.
At Commercial Finance Network, we accept equity release mortgage applications from homeowners across the UK. Fast decisions, industry-leading practices and an eclectic panel of specialist lenders mean that our equity release brokerage services bring you immense value.
To request a call back from our team of equity release experts, call us on 03303 112 646 or drop us a line here.