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Is the surge in Equity Release killing the downsizing market?

The rise and rise of Equity Release continues with a more-than-doubling of the number of product options on the market in the course of two years.

A new report from the Equity Release Council, an industry umbrella body, says there were 139 ER products available in August of this year, compared to just 58 available two years earlier. 

The council also says that for every £1 of savings withdrawn via flexible pension payments in the last 12 months, 50p of housing wealth was unlocked via equity release – up from 40p a year earlier.

Meanwhile the number of equity release customers has also soared - up by 81 per cent from the first half of 2016 to the first half of 2018, prompting the surge in the number of ER products. 

In a bid to win more customers - who may well otherwise have downsized their homes to release equity - many of the newer ER products allow consumers to make ad-hoc, penalty-free voluntary or partial repayments of their loan. Some other lifetime mortgages have what the equity release industry call ‘ringfenced equity’ - this means owners can retain some of the value of their property as a guaranteed minimum inheritance.

A total of 38,912 households aged 55 and over used ER products from Equity Release Council member companies in the first half of this year. 

This included 21,490 new plans agreed, up by 28 per cent from 16,805 a year earlier. 

Throughout H1 2018, the average house price among ER customers were above the latest UK average house price of £228,384. 

“These figures highlight the rise in new products and increased product flexibility … this innovation has brought more competition to the later life lending arena, while maintaining the standards and protections which ensure equity release products are futureproofed to provide good outcomes for consumers” says David Burrowes, chairman of the Equity Release Council.

However, Plymouth estate agent Andrew Bullivant of the city’s branch of Attwell Martin has spoken out strongly against ER being allowed to take place without any tax being applied - whereas transaction taxes like stamp duty can be a deterrent to downsizers.

“Over 55s are selling the family silver faster than ever before” he says, expressing concern that their impact is to reduce the availability of homes on the market.

Poll: Are people taking out ER policies instead of downsizing?

PLACE YOUR VOTE BELOW

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    A rise in equity release cannot kill the market, just delay it. Sooner or later these properties will come on the market; and then in numbers. In the meantime there will be fewer available as the bubble grows.

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    The surge in equity release is certainly shift a lot of risk from the Baby Boomers to the finance companies writing the put options on the market. I am pretty concerned though about how blase the finance providers are. KPMG are suggesting that a 40% decline in prices is a realistic scenario. In that scenario you are looking at billions of losses for the 'no negative equity' finance providers. Sub prime all over again?

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    Or from the other perspective, has a lack of investment in the property sector led to an increase in equity release? The scarcity value of 'retirement' properties available in areas where downsizes want to live (normally the area in which they already live) is causing a blockage in the natural supply of properties coming to the market. This combined with the increased average cost of a suitable bungalow in these usually affluent areas is increasing the prices of the properties at the top end, meaning that in many areas the financial gap for families wanting/needing to make the next step up the ladder is insurmountable, couple this with no real term wage growth for most middle income families and you have a real problem.

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