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Equity release lending hits fresh high of £1.6bn

Paloma Kubiak
Written By:
Paloma Kubiak

Equity release lending reached a new high of £1.6bn in Q2 – double the figure recorded two years ago.

This is the fourth consecutive quarterly period to close with record lending, and according to the Equity Release Council (ERC), the total amount released in the first six months of 2022 has surpassed £3.1bn. This is 36% more than the previous half-year record of £2.3bn in 2021. 

The number of new plans agreed between April and June also rose 26% on last year to 12,485, which the ERC said averaged at over 200 plans being taken out by borrowers each day. 

However, this was down on a peak seen in Q4 2018 when 12,891 new plans were agreed. 

David Burrowes, chair of the ERC, said: “The fact that hundreds of homeowners are now choosing to release equity each day, based on detailed financial and legal advice, is significant progress from the days when the market was considered an under-developed niche rather than the mainstream option it has become.” 

In total, the equity release sector served 23,910 new and returning borrowers, up 2% on the previous quarter and a 17% rise on the same period the year before. 

Average loan sizes for new borrowers remained fairly stable at £132,331 compared with £129,558 in 2021. The average new drawdown plan resulted in a first withdrawal of £90,646 compared with £86,349 in 2021.  

New drawdown customers also opted to hold more money in reserve. In Q2, this rose to £46,833 compared to £34,310 the year before, which was a rise of 37%. The ERC said this was likely due to house price rises which have added an average of £32,000 to the value of the average home over the past year. 

Lump sum preference 

For the first time since 2009, new borrowers were more likely to chose lump sum lifetime mortgages over drawdown deals. Lump sum deals accounted for 54% of new plans, compared to a share of 46% of plans in Q1 and 45% of plans in Q2 last year. 

Alice Watson, head of marketing, insurance at Canada Life, said: “It is interesting to see the rising popularity of lump sum products, leapfrogging drawdown to become the most popular option among new customers. This could be the result of people looking to clear their existing mortgage at a time of maturity or seeking to support a loved one’s deposit for their first home.  

“All this further highlights the real world applications of equity release and how property wealth can be used flexibly and effectively.” 

The last time equity release borrowers chose lump sum plans over drawdown, the Bank of England’s base rate was 0.5%. 

Steve Wilkie, executive chairman of Responsible Life, said: “The cost-of-living crisis is now ricocheting through the equity release market. Rising interest rates have sparked a surge in the proportion of borrowers opting for lump sum mortgages over those with drawdown facilities. This is the first time a majority have opted for this type of loan since Gordon Brown was prime minister, which also happens to be the last time interest rates were this high. That can’t be a coincidence. 

“The bottom line is that, in an inflationary environment, most retirees again feel they need all of their money on day one. This wasn’t the case over the past 13 years, when the majority felt able to defer some of their borrowing in a bid to reduce their overall interest payments.  

“Drawdown allows homeowners to access money when they need it, and not pay interest on that borrowing until they do.” 

Returning borrower trends 

The number of returning drawdown customers dropped from 9,450 in Q1 to 9,305 in Q2. Compared to the same period last year, this was also slightly down on the 9,382 customers seen. 

However, this was the first time more than 9,000 borrowers had been served by the sector for two consecutive quarters since the pandemic. 

Returning drawdown customers accessed an average of £13,506, a small rise on £13,056 in Q1. This was a third higher than the average £10,174 accessed in Q2 last year. 

Some 2,120 borrowers agreed further advances on existing plans, with 1,019 extending their borrowing on drawdown plans 1,099 adding additional borrowing to lump sum plans. 

Borrowers agreed an average further advance of £31,367 to their lump sum plan, roughly equivalent to the average rise in house prices over the year. Further advances for drawdowns stood at £29,843 with an average £22,754 taken upfront and £7,089 held in reserve. 

Dave Harris, CEO of More2Life, said: “What a difference two years can make. In Q2 2020, the Equity Release Council figures suggested that lending to new and existing customers was nudging £700m and today, we are pleased to see that it has more than doubled in Q2 2022 to £1.6bn. 

“While there is no doubt this is driven by increasing numbers of customers who are taking the proactive choice to include their largest single asset in their later life planning, advisers and the wider later life lending community has certainly played a role. Speaking to networks, platforms and IFA firms, there is real interest in the role that property can play in helping people to enjoy a better standard of living in retirement. 

“There is much for the industry still to do and we need to continue to focus on how we can best meet customers needs but the Q2 figures suggest that we are on the right track.”