Older homeowners released a record £4.4 billion in property wealth last year at a rate of more than £12 million a day as customers helped family and secured their own finances by repaying debt or remortgaging existing borrowing, according to new data.
Around one in five equity release plans (19 per cent) taken out in 2021 was used to support family while two in five (38 per cent) were used to repay residential mortgages or remortgage existing equity release borrowing, financial advisor Key found.
This major new trend developed as existing customers realised how they could benefit from the lower rates and increased flexibility offered by modern products driving a 174% year on year surge in rebroking, the firm said.
While the number of plans taken out increased by nearly 4% in 2021 to 41,991 (FY 2020 – 40,470), it was still lower than the record reached in 2018 (47,081) and the 28% growth in the value of the market was driven by customers releasing larger amounts, Key said.
Focused on supporting wider families and managing debt, over-55s released an average £104,792 worth of housing equity via equity release during 2021 – an increase of 23% on the previous year and 37% higher than 2019 before the pandemic started.
Remortgaging and drawdown
Remortgaging became much more important in 2021 with around 5,295 customers moving for lower rates compared with 1,930 remortgage cases in 2020.
The average customer moved a balance of £135,529 from an interest rate of 5.1% to 3.6% and the volume of cases accounted for 22% of all equity released used for debt repayment.
Existing customers took out an additional £494.48 million last year in drawdown and further advances and customers used drawdown plans to reserve a further £1.32 billion during 2021.
Drawdown plans accounted for 74% of sales last year compared with 70% in the previous year with lump sum mortgages accounting for 26%.
Spending has shifted
The number of customers using property wealth to pay off mortgages nearly doubled from 20% in 2020 to 38% last year and the numbers using it to pay off unsecured debt remained steady at around 27%.
The growth the amount used to repay mortgages was driven in part by the significant uplift in the number of people remortgaging equity release plans to access new features, improve interest rates and increase borrowing.
However, the amount of money used to pay unsecured debt dropped from 18% to just 6% suggesting older homeowners were able to use their incomes to pay off debts as COVID-19 restrictions hit spending. Spending on holidays continued to fall from 23% in 2020 to just 7%.
“To record this type of growth against the backdrop of a pandemic suggests that the equity release market is starting to live up to the potential that we have been highlighting for so long and is becoming a true later life lending market,” said Will Hale, CEO at Key.
“We’ve seen a subtle shift away from discretionary spending with more customers focusing on using their housing equity to improve their financial resilience by repaying or remortgaging borrowing while others have concentrated on supporting family,” he continued.
“The growing desire to move existing equity release borrowing to a better rate has been a feature of 2021 and we see this becoming an increasingly normal part of the market.”
“Looking ahead, with customers having focusing on meeting pressing needs over the last 24 months, we anticipate that there will be pent up demand for discretionary spending amongst some over-55s who have found that their retirement is currently very different from what they anticipated.
“However, this is likely to be tempered by inflationary pressures and increasing numbers of customers seeking to boost their or their families spending power to meet rising household bills.”
“The later life lending market is able to support these wide ranging needs and this will be good for consumers, the market and the wider economy as we move through 2022. As an industry, we must rise to the challenge of supporting our clients by continuing the evolution that has seen significant growth in innovative products and options for customers.”
Across the UK
Key’s Market Monitor, which analyses data reflecting the whole market, shows all regions apart from Northern Ireland saw a rise in the value of new equity released in 2021 with 10 recording double digit increases.
The biggest year on year rise was in Wales where the total value of new equity soared by 59% followed by London with a 48% increase.
Plan sales increased in eight of the 12 geographic areas tracked, but the only significant drop was in Northern Ireland where sales fell by 17%.
The South East, West Midlands and Scotland all recorded strong increases in the total value of equity released despite plan sales falling.
The strength of the housing market in the South East and London meant those regions accounted for nearly half of all equity released during the year despite accounting for only a third of plans sold. The table below shows the breakdown across the country:
|Region||Number of plans sold 2021||% change on 2020||Total value of new equity released 2021 (£ million)||% change on 2020 (£ million)|
|South East||9,652||Down 1%||£1,228.678||Up 19.8%|
|London||4,243||Up 9%||£942.199||Up 48.2%|
|South West||4.919||Up 11%||£516.298||Up 36%|
|North West||4,227||Up 6%||£315.736||Up 33%|
|East Midlands||3,652||Up 8%||£281.845||Up 26%|
|West Midlands||3,493||Down 4%||£277.468||Up 12%|
|East Anglia||2,481||Down 6%||£216.072||Up 14%|
|Yorkshire & The Humber||3,003||Up 12%||£193.325||Up 25%|
|Wales||2,231||Up 24%||£161.737||Up 59%|
|Scotland||2,305||Down 5%||£151.979||Up 6%|
|North East||1,443||Up 6%||£94.949||Up 28%|
|Northern Ireland||341||Down 17%||£19.993||Down 12%|