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Equity release hits record level among older homeowners

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Written by: Shekina Tuahene
02/11/2022
Lending in the equity release sector totalled £1.5bn in Q3 – a fresh record for the industry, while the number of plans taken out has increased by a third.

This rose from a total of £1.05bn last year, as the average borrower released £114,354 from their property during this quarter.  

Borrowers in London unlocked the most wealth at an average of £261,946 per household. Equity released by homeowners in the South East, South West and West Midlands exceeded £100,000 respectively. 

The number of plans taken out rose by 29% to 13,341. 

The sale of plans and the total value of equity release rose across every region, with London and Scotland being the only places to record single digit growth of 4% and 2% respectively. Scotland saw a 34% increase in the value of equity released to £54m while London reported a 65% rise to £292m. 

Existing equity release borrowers 

Equity release borrowers took advantage of product flexibility with remortgage activity rising by 17% compared to 14% last year. 

Key estimates there were 1,004 remortgage cases last year which doubled to 2,268 this year due to lower interest rates. During Q3, the average customer moved a balance of £115,817 from an interest rate of 5.1% to 4.6%. 

By the end of the period, there were 582 products on the market with all new options offering penalty-free ad hoc capital repayments. Some 65% offered downsizing protection, while 63% allowed borrowers to service interest. Some 64% of products offer fixed Early Repayment Charges (ERCs), while 34% gave an option of either fixed or variable ERCs.  

Just 2% of plans offer gilt-linked variable ERCs. 

Most borrowers were driven to equity release to manage their finances with two-thirds of borrowers using the funds to manage debt. Some 28% put the money towards clearing their mortgage, a quarter rebroke their equity release plan while 7% repaid unsecured debt. 

A fifth of borrowers used the money to support their families, gifting an average of £53,503. 

‘Older borrowers sitting on unmortgaged wealth’ 

Will Hale, CEO at Key, said: “With over-65 homeowners sitting on an estimated £3trn of unmortgaged property wealth and four in five of the customers who progress to speaking to one of our advisers looking to address a financial need, there is clearly a key role for the sector to play in helping older customers navigate the current economic challenges and still live a fulfilling later life.   

“Modern lifetime mortgages have come a long way in a short period of time, so when you consider features such as drawdown, the ability to serve interest and/or the opportunity to make ad hoc capital repayments free of Early Repayment Charges, there is more opportunity than ever before for customers to carefully manage their borrowing.”   

He added: “The proliferation of fixed ERCs which typically disappear after around ten years – although it can be as low as five years – also means that remortgaging these plans in future is a real option for many people.    

“In these market conditions, more than ever before, specialist advice is crucial.” 

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