Older owners not selling? It’s because of Equity Release

If agents wonder why more older home owners don’t sell and downsize, it may be because they’re taking equity out of their properties.

Older homeowners released a record £4.4 billion in property wealth last year at a rate of more than £12m, data from equity release adviser Key shows.

Around one in five equity release plans taken out in 2021 was used to support family while two in five were used to repay residential mortgages or remortgage existing equity release borrowing.  

While the number of plans taken out increased by nearly four per cent in 2021 to 41,991 it was still lower than the record reached in 2018 (47,081).

Over-55s released an average £104,792 worth of housing equity via equity release during 2021 – an increase of 23 per cent on the previous year and 37 per cent higher than 2019 before the pandemic started.

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 per cent to 3.6 per cent and the volume of cases accounted for 22 per cent 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 per cent of sales last year with lump sum payments accounting for 26 per cent.

Will Hale, Key’s chief executive, says: “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.

“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.   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.”