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Drawdown sales growth reflects cautious approach to accessing housing equity

15 November 2019

Download the full report at: 
www.keyadvice.co.uk/about/market-monitor

Take up of drawdown plans grew strongly as the equity release market recorded its best quarter this year for volume and value of new business, data from the UK’s leading over-55s specialist adviser Key shows.

Key’s Equity Release Market Monitor showed that 11,772 plans worth £886.59 million were taken out in Q3 2019 with an additional £368.58 million reserved for future use as current economic and political turmoil encouraged customers to be cautious.  The volume of plans taken out is 8% up quarter on quarter (+836 from 10,936) but 3% down year on year (-361 from 12,133). 

Boost for Drawdown:
Drawdown products (both enhanced and standard) now account for 75% of all equity release plans sold (62% - Q3 2018) and we saw a decrease in the average initial amount released from £60,922 (Q3 2018) to £58,729 (Q3 2019).  This seems to suggest that consumers see real benefit from the flexibility offered by these products as they remain cautious and keen to manage their borrowing carefully in light of current economic uncertainty.  

The increasing popularity of these drawdown products also resulted in the overall average amount released fall from £76,967 (Q3 2018) to £75,300 (Q3 2019) on an average loan to the value of 24%. Lump sum lifetime mortgages made up 25% of sales, including 9% of enhanced plans. 


Increased Interest in Remortgaging:
The over 55s desire to manage their borrowing carefully was also evident in the increase in the number of people who are choosing to ‘remortgage’ their equity release plan to release more funds or save money - 3% (Q3 2018) to 5% (Q3 2019).   With over 310 products on the market and the sector enjoying a period of historic low interest rates (from 2.63% MER), this is a trend that is likely to increase provided advisers are able to find the right deal for their customers – some of whom are on variable early repayment charges.

Equity Release Uses Remain Stable:
While up to half of people use equity release to shore up their finances – clearing mortgages (19%) and repaying unsecured debt (29%) – the largest proportion of customers used their equity to improve their homes or gardens (67%) as they look to age proof their homes in later life.  In addition, 34% funded holidays and 27% were able to help family.

Will Hale, CEO at Key, said: “While the market is not seeing the double-digit growth of recent years, it continues to prosper and Q3 2019 has been the strongest quarter this year with people releasing over £887 million and reserving a further £369 million.  The growth in popularity of drawdown, the smaller amounts released and the increasing numbers of customers looking to remortgage, all points to borrowers who see the value of using their housing equity but want to do this as cautiously and responsibly as possible.  

“Historically low rates and the wide range of products with innovative features mean that those who do want to help themselves or their families by accessing the value tied up in their home have a range of options.  However, it also means that specialist later life advice is vital as making the wrong choice around whether to borrow, how much to borrow and how to borrow can have long term consequences.”

Around the country
Key’s Market Monitor, which analyses data reflecting both Equity Release Council members and non-members, found the biggest increase in value released was in Wales at 21% followed by the West Midlands at 12%. Yorkshire & The Humber and London also saw increases. The biggest drops in value released were in East Anglia and the South West.

Wales also recorded the largest increase in plan sales at 18% followed by Yorkshire & The Humber on 14% and the West Midlands on 11% while London also saw gains. The biggest fall in plan sales was in the North East.

 

Region Number of plans sold 2019 Q3 Number of plans sold 2018 Q3 Total value of new equity released 2019 Q3 (£ million) Total value of new equity released 2018 Q3 (£ million)
South East 2,817 2,959 £246.997 £260.721
London 1,209 1,190 £175.587 £168.589
South West 1,274 1,462 £88.846 £111.776
North West 1,141 1,147 £67.060 £71.559
West Midlands 999 898 £63.199 £56.612
East Midlands 927 1,034 £52.989 £62.116
Yorkshire & The Humber 903 789 £46.957 £43.976
East Anglia 794 949 £47.933 £63.910
Scotland 693 700 £37.423 £40.166
Wales 580 490 £34.841 £28.695
North East 318 401 £19.804 £20.032
Northern Ireland 117 113 £4.951 £5.714
UK 11,722 12,133 £886.593 £933.872


Anyone looking to release equity from their home can get Key’s independent guide to equity release by calling 0800 531 6027 or visiting https://www.keyadvice.co.uk/equity-release/is-it-right-for-me