Innovation driving equity release growth as product numbers double: ERC

As of August 2018, 139 product options were available to consumers, more than double the 58 products on the market two years ago.

The Council says this increase in product choices has sparked a growing base of equity release customers in recent years – up by 81% from H1 2016 to H1 2018.

It also noted the greater flexibility that today's equity release products offer. Four in five (80%) product options offer consumers the choice to make ad-hoc, penalty-free voluntary or partial repayments of their loan, up from 68% a year ago, while lifetime mortgages now include the option to ringfence equity.

Additionally, increased choice has come with lower pricing driven by greater competition in the sector: the average interest rate for equity release products was 5.22% as of July 2018, down from 5.27% in July 2017 and from 5.96% a year earlier. Comparing average rates by customer rather than by product shows that the typical new customer paid less than 5% across both drawdown and lump sum plans.

A total of 38,912 households aged 55 and over used equity release products from members of The Council to unlock housing wealth in H1 2018. This included 21,490 new plans agreed, up by 28% from 16,805 a year earlier. A further 15,709 returning drawdown customers made withdrawals from their agreed reserve funds between January and June, up 25% year-on-year.

Across both product types, the average customer continued to draw on proportionate amounts of housing wealth below the 50%+ maximum LTV available on the market. The average size of a lump sum plan was smaller in H1 2018 than in H2 2017, bringing the average loan-to-value down to 30.8%.

In contrast, the average drawdown plan increased, but customers continued to take less than a fifth (18.2%) of their total housing wealth as an initial advance – keeping further funds in reserve, limiting the build-up of interest over the lifetime of their plan.

Government figures show the number of households in England purchased via a gift or loan from friends or family recently reached a post-2007/8 high of 1.1m.

David Burrowes, chairman of the Equity Release Council, commented: “These figures highlight the rise in new products and increased product flexibility, which is helping older homeowners to fulfill a host of pressing personal, social and financial needs. This innovation has brought more competition to the later life lending arena, while maintaining the standards and protections which ensure equity release products are futureproofed to provide good outcomes for consumers.

“As customers navigate their way through a growing range of product choices – including retirement interest-only mortgages – the appropriate advice, guidance and support is needed to weigh up the various benefits, costs, flexibilities and protections to ensure they are suitable to meet both current and future needs.

“Industry and regulators must continue to work to ensure customers are aware of all the options available to them when deciding how best to support themselves and their families in later life, taking all their assets – including pensions, savings, investments and property – into consideration.”