Equity Release In 2021: As The World Begins To Open Up, Is The Market Prepared?

Gareth Ware - Senior Comms & Editorial Executive

Published on 22nd April 2021

As the world begins to open up and a gradual return to normality begins to look ever more realistic, it’s only natural to begin asking what the future looks like for the lifetime mortgage market. The good news is that, based on the Equity release Council’s Spring Market Report, there was a definite uptick in activity in the lifetime mortgage market between H1 and H2 of 2020, with a 19% rise in plan volume. The question is, can this be sustained over the rest of the year?

A resilient market continuing to innovate

The Property Management Team was introduced to the Mortgage Servicing Team just over a year ago, with the principle aim of providing support and guidance to family members and solicitors following the death of the final customer, or when the final customer moves into permanent long term care, assisting them in finding a suitable solution.

What’s indisputable is the equity release market’s consistent competitiveness, and what effect that has had on the customer experience both in terms of plan flexibility and in terms of the personal cost in taking out a lifetime mortgage. On the latter point, the sector can proudly boast an ongoing trend in falling interest rates, and despite challenging conditions throughout 2020 ongoing product innovation has pushed the average interest rate across the market to a record low of 3.95% by January of this year. This compares with an average rate of 6.2% in January of 2016, and 5.21% in January of 2019, demonstrating a prolonged pattern of falling rates that has culminated in 58% of lifetime mortgage plans offering interest rates of 4% or lower.

The market’s competitive nature continues to extend far beyond rates, however, with lenders releasing increasing numbers of plans, even amid the inherent challenges of a global pandemic. By January of this year there were 488 plans available, considerably more than double the 202 being offered back in January of 2019. But the market has also seen growing levels of flexibility, ensuring that customers have access to the retirement solutions that meet their needs not only at point of application, but also going forward as their circumstances change.

Looking beyond the rates: flexible plans and customer trends

This has manifested itself through a number of key market statistics, including 48% of plans now potentially being available to customers living in sheltered accommodation, 64% of products allow ERC-free voluntary capital repayments and 50% of products offer drawdown facilities. In terms of emerging trends among existing customers, H2 of last year saw a drop in returning drawdown and further advance activity, as many took a cautious approach to accessing further funds given the wider landscape. In a world where many pointed to a likely increase in pandemic divorce rates (tying with pre-existing patterns of rising numbers of people divorcing later in life, in turn raising the national average age) and a potential increase in single life lifetime mortgages being taken out, it’s interesting to note there’s actually been a rise in joint lives applications on lump sum plans, representing 55% of activity in H1 2019, and 60% by H2 2020.

Similarly, it’s intriguing to note that customers in the second half of 2020 could boast higher average house prices than in 2019, yet accessed smaller percentages of property wealth. Smaller amounts have historically been used for aspirational purchases such as cars and holidays (with higher release amounts usually reserved for mortgage repayments and debt-clearing). The sharp decline in appetite of these likely means these smaller amounts are either being used as a top-up for homeowners’ own finances as a safety net in challenging times, or are being gifted to family members – either to offer general financial support, or to help take advantage of the stamp duty holiday and get them on the property ladder.

What the rest of the year holds for the market remains to be seen, but we enter an increasingly open world in the knowledge that the market has remained an innovative and resilient space, and that customer habits continue to evolve amid a changeable and finely-tuned landscape.

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