Equity release rates fall to record lows amid Covid-19: ERC

Average rates for equity release products reached record lows of 4.11% in July 2020, with over half of products offering a rate of 4% or lower and a fifth offering rates below 3%.

Equity release rates have fallen further than other personal borrowing products – mortgages, personal loans, credit cards and overdrafts – over both a one and two-year period.

Additionally, product choice for consumers was up 29% from July 2019 and by 88% since the start of 2019, despite a 5% reduction in product numbers from 401 to 379 between January and July 2020.

The impact of Covid-19 felt in Q2, as the first half of 2020 saw an overall 14% drop in customer activity from the same period last year and a 15% drop in new plans agreed.

Q1 saw 11,079 new plans agreed and 21,884 total customers served, falling to 7,341 and 13,617 respectively in Q2.

Fewer customers sought further advances in H1 2020 and those who did typically withdrew slightly smaller amounts than in the previous six months.

New and returning drawdown activity was similarly impacted by the pandemic. The 15,413 returning drawdown customers figure in H1 2020 was down 13% year-on-year to the lowest number seen since H2 2017 (13,209) as people paused to assess the impact of Covid-19 before making use of agreed reserves.

David Burrowes, chairman of the Equity Release Council, commented: “The unprecedented uncertainty of the first six months of 2020 has affected households and businesses alike, with the equity release market no exception. While pent-up demand in Q1 led to a strong first quarter, the impact of Covid-19 and the lockdown dominated Q2 before showing initial signs of recovery in June.

“Despite this uncertainty, the market has shown resilience and consumers considering equity release continue to find a wide range of product options on the market, while the average rate has fallen considerably over the last eighteen months. As the UK’s ageing population seeks to fund increasingly longer retirements, property wealth can play a fundamental role for many people, both now and in the future, as part of a more joined-up approach to planning for retirement. The challenges that lie ahead show no signs of easing, so it is important that people are aware of all the options available to them to help fund later life.

“We believe the robust standards upheld by the Council, which were evolved last year to be outcomes-focused, provide the highest level of consumer protection of any later life property-based loan. Looking ahead, we are committed, now more than ever before, to working with members, industry, government, and regulators to ensure the best possible consumer outcomes.”