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Equity release market continues to grow: 2007 review shows massive £1.4bn released
15th January 2008
Demand for UK Equity Release still shows no signs of slowing
- Amount of equity released by retirees up by a quarter to nearly £1.4 billion in 2007
- Demand for equity release increased by 9% in 2007 on the previous year
- Proportion of Lifetime Mortgage plans fell from 69% to 43% year on year as demand for Reversion schemes increased and Drawdown continues in popularity
- Average age of equity release consumer continues to fall – average age in 2007 was 68 years
Despite the global credit crunch and speculation that the UK housing market is set to slow-down, the UK equity release market continued to thrive in 2007 with a 9% rise in demand compared to the previous year, according to figures released today from the UK Equity Release Market Monitor by Key Retirement Solutions, the leading independent specialist adviser.
Tracking activity in the UK equity release market, the Key Retirement Solutions Market Monitor has found the total amount of equity released by retirees has increased by a quarter (24%) to just under £1.4 billion in 2007, compared to just over £1.1 billion in 2006.
Home Reversion plans remain constant following FSA regulation in 2007, and popularity of Drawdown continues
The demand for home reversion plans - whereby you sell part or all of your home to a reversion plan company in exchange for a lump sum – remained steady in 2007, dropping only slightly to 6% of all policies from 7% in 2006, following the introduction of FSA regulation in April 2007. The standard lifetime mortgage, where a cash lump sum is given to you at the start with no monthly payments to meet, has declined from 69% to 43% year on year, as reversion has increased and drawdown plans continue to increase in popularity.
Drawdown – whereby a consumer ‘draws down’ the cash in stages - remained in high demand in 2007 with the number of plans doubling year on year, accounting for over half of all plans (51%) compared to 23% in 2006.
Dean Mirfin, Business Development Director at Key Retirement Solutions said:
“Despite the ever volatile landscape of the UK economy, the demand for equity release continues to rise. The increase in the drawdown facility is in line with predictions as many consumers prefer the option due to the cost advantages of the product, and consumers feel more in control of their money choosing to make withdrawals as and when they need to. The drawdown market will stabilise throughout 2008 and we can expect to see it holding a 50-60% share of total plans sold.
”With the introduction of Home Reversion regulation in April 2007, in line with Lifetime Mortgages, demand for these plans has remained constant. If in 2008 we do enter a period of zero growth in property prices, or even a downfall for some, then Reversion Plans will become more appealing , and we can expect to see a rise in take up as consumer confidence grows.”
The age of the equity release consumer continues to fall
An interesting trend in the Market Report shows that for the second time in the nine years Key Retirement Solutions has been monitoring the equity release market, the average age has fallen again from 69 to 68 years.
Dean Mirfin comments:
“The second fall in the average age of an equity release consumer confirms our prediction last year that, as an increasing number of retirees do not have sufficient funds to live comfortably in retirement; more and more are turning to the assets tied up in their homes to supplement their income. There are now some five providers offering products from age 55 onwards. We expect to see some of the new entrant providers during 2008 also offering plans to this age group.”
The demand for equity release showed a constant increase throughout 2007, with the last quarter of 2007 up 6% in demand compared to the same period the previous year. The total amount of equity released by retirees in the last quarter of 2007 increased by 17%, totalling £360 million compared to £308 million in the last quarter of 2006. Although both demand and the value released by retirees remained higher in 2007 than the previous year, the overall percentage increase steadily slowed in the second half of the year.
Regional trends
Northern Ireland continues to see impressive growth and once again saw the biggest leap in the number of people releasing equity from their home, up by 208%, and the value of plans taken out increased by a staggering 305% in one year to £21.1m in 2007.
Unsurprisingly, London (£218.5m) and the South East (£343.9m) saw the biggest sums of equity released from homes in 2007, followed by the South West (£190.6m). However, the North West and the West Midlands saw a drop in the number of equity release plans taken out in 2007 versus 2006 and the former saw an 11% drop in the overall value of plans taken out too.
Dean Mirfin comments:
“The continuing growth in demand for equity release is testament to the industry’s increased transparency and flexibility. As we see new entrants launching in the early part of this year we can expect the market to go from strength to strength.
“Whilst growth in UK property prices may be slowing demand for equity release should continue although the product mix may change with home reversion potentially increasing in popularity. In addition, the majority of people who release equity from their home take considerably less than the maximum available and so the property value, whilst important, is not as essential in meeting the needs of the majority of equity release customers.
Uses of equity release
Key has found that over half of their customers (58%) use equity released from their home to carry out home improvements, while 40% use it to pay bills, debts or outstanding mortgage repayments. One in three (34%) use their equity to go on holiday and 5% use the money to fund their care needs or pay for medical care
Dean Mirfin comments:
“There are many reasons that people will release equity from their homes: for some it is to provide them with a more comfortable retirement perhaps taking the holiday they have always wanted to or treating their loved ones. However, in today’s current environment it is unsurprising that four out of ten use it just to get by day by day - to pay for bills and outstanding debts..
“Equity release can provide retirees with financial freedom in retirement but it's not always the right option for everyone. We firmly believe no-one should commit to any form of equity release without seeking independent financial advice.
“Our independent guide to releasing equity from your home is the best place to start for anyone investigating the option of equity release and discusses the alternatives too."
| Area | Value | Percentage Change (Q! 2008 on Q1 2007) | Number | Percentage Change (Q1 2008 on Q1 2007 | Average Value Released | Average LTV | Average Customer Age |
|---|---|---|---|---|---|---|---|
| East Anglia | £79.9m | 43.6% | 1869 | 20.6% | £47,994 | 24% | 68 |
| East Midlands | £84.5m | 16.9% | 2413 | 10.9% | £39,419 | 22% | 68 |
| London | £218.5m | 63.9% | 2650 | 15.8% | £92,780 | 24% | 70 |
| North | £40.3m | 21.4% | 1275 | 32.4% | £35,525 | 22% | 67 |
| North West | £136.1m | -10.9% | 4056 | -13.2% | £37,736 | 20% | 68 |
| Northern Ireland | £21.1m | 305.8% | 444 | 208.3% | £53,580 | 24% | 66 |
| Scotland | £48m | 124.3% | 1319 | 131.8% | £40,956 | 26% | 69 |
| South East | £343.9m | 12.4% | 6406 | 4.1% | £60,391 | 23% | 69 |
| South West | £190.6m | 15.0% | 3500 | 1.4% | £61,369 | 30% | 69 |
| Wales | £58.5m | 37.6% | 1469 | 18.7% | £44,778 | 25% | 68 |
| West Midlands | £91.8m | 25.6% | 2169 | -2.5% | £47,624 | 23% | 68 |
| Yorks & H'side | £83.2m | 20.2% | 2519 | 11.0% | £37,141 | 22% | 67 |
Regional Highlights
Regional value of equity release plans sold Q3 2007: |
Regional number of equity release plans sold Q3 2007: | ||
| Highest |
£95.4m (South East) £51.7m (South West) £46.8m (London)
| Highest |
1763 (South East) 1094 (North West) 906 (South West)
|
| Lowest |
£5.6m (Northern Ireland) £10.0m (North) £10.4m (Scotland) | Lowest |
119 (Northern Ireland) 256 (North) 325 (Scotland) |
Regional Highlights
Regional value of equity release plans sold Q4 2007: |
Regional number of equity release plans sold Q4 2007: | ||
| Highest |
£83.6m (South East) £70m (South West) £40.8m (London)
| Highest |
1619 (South East) 900 (North West) 744 (South West)
|
| Lowest |
£7.8m (Northern Ireland) £12.5m (Scotland) £13.2m (North) | Lowest |
159 (Northern Ireland) 313 (Scotland) 406 (North) |
Growth in number of plans 2007 on 2006
Growth in value of plans 2007 on 2006
Average customer property values 2007 on 2006
Average amounts released 2007 on 2006
Equity release product split 2007 on 2006
Uses of cash released 2007
For more information, please contact:
Dean Mirfin (Business Development Director)
Key Retirement Solutions
07879 678737
Louise Willcox
Lansons Communications
Tel: +44 (0)20 7294 3676
louisew@lansons.com
