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Older homeowners release £1.42 billion of property wealth

14 July 2020

Older homeowners released £1.47 billion worth of property wealth in the first half of 2020 but this was driven by a buoyant Q1 as the impact of the coronavirus and resulting political and economic uncertainty hit the market in Q2, the new look Market Monitor from Key, the UK’s leading equity release adviser, shows.
 
Q1 VS. Q2 – A VERY DIFFERENT PICTURE:
Between Q1 2020 (11,495) and Q2 2020 (8,374), the market saw a 27% fall in the number of customers using equity release and a 45% fall in the amount of new equity released (£949 million to £521 million).  The total value of plans including reserved drawdown fell from £1.32 billion (Q1 2020) to £767 million (Q2 2020) over the same period.
 
While some of this may be due to customers being more cautious, demand has remained strong so the servicing challenges faced by the industry due to lockdown are likely to have had some impact which suggests we may see a bounce back in Q3.
 

Equity Release Value and Volume of Plans:
  H1 2019 H1 2020   Q1 2020 Q2 2020
No. of customers 22,126 19,869   11,495 8,374
Value of new plans £1.68 billion £1.47 billion   £949 million £521 million
Total value of plans £2.4 billion £2.1 billion   £1.32 billion £767 million
 
H1 2019 VS. H1 2020:
Low volumes in Q2 impacted on H1 figures with the number of plans taken out falling 10% to 19,870 from the same time last year (H1 2019 – 22,216) while total property wealth value released fell 12.6% to £1.47 billion from £1.68 billion.
 
The total market including unused drawdown facilities was worth £2.04 billion in the six months compared with £2.38 billion with the value of reserved drawdown falling to £624 million from £706 million. In the first quarter the value of reserved drawdown was higher than last year at £390 million compared with £340 million. 
 
The average loan amount fell slightly in H1 2020 to £74,014 (H1 2019 - £76,064) while the average property value increased slightly to £321,209 (H1 2019 - £318,571).   Average customer ages also remained relatively static at 70-years old (H1 2019 – 71 years old).
 
Will Hale, CEO at Key, said: “The unprecedented circumstances the UK and the world finds itself in due to the coronavirus has been reflected in the significant slowdown in the equity release market in the second quarter. Whilst the sector has been remarkably resilient in adjusting working practices in the face of lockdown to ensure we can continue to help customers, there are a number of knock on effects from the current pandemic.
 
“Indeed, not only are cases taking longer to complete but it is only appropriate that people are delaying their decision to access their housing equity due to the current uncertainty. At Key, we have certainly been having these types of conversations with customers and really focused on helping people decide whether they have an immediate need or perhaps can wait until society returns to a situation when booking a holiday or age-proofing their home is possible.
 
“That said, demand has remained strong as more customers look at explore how housing equity could help them support them in later life and, as we move to more normal trading conditions, we are confident that these macro drivers will ensure that we will return to growth by year end and into 2021.”
 
HOW CUSTOMERS ARE USING THEIR PROPERY WEALTH
Key’s market analysis now includes the most in-depth look at how equity release is used following the launch of its market-leading advice delivery platform enabling it to capture more detailed data.
 
It clearly highlights that in H1 2020, while 59% of people spent some of the equity they released on home or garden renovations only 16% of the proceeds were spent on this reason. Instead, repaying mortgages (24%) and gifting (21%) were more common.
 
H1 2020 Proportion of Customers Proportion of equity released
Home/Garden Renovations 59% 16%
Repay mortgages 19% 24%
Repay debt 29% 16%
Holidays 27% 6%
Gifting 24% 21%
 
Given the unusual situation the economy finds itself in, Key also looked at how spending patterns in Q1 2020 differed from those in Q2 2020.  This suggested that customers were focused on making their finances more secure (+6% spent on mortgage repayment) rather than discretionary spending (-4% spent on holidays).
 
Proportion of Customers Q1 2020 Q2 2020
Home/Garden Renovations 17% 14%
Repay mortgages 25% 31%
Repay debt                           12% 13%
Holidays 8% 4%
Gifting 21% 21%
 
Will Hale, CEO of Key, said:
“Q1 2020 was very different from Q2 2020 and it is only appropriate that those customers exploring equity release during the time of the pandemic have been focused on shoring up their finances by repaying debt and supporting their wider families rather than looking to spend money on holidays or home and garden improvements.  Even with the changes that the Chancellor recently announced, many older consumers are likely to be extremely cautious about their choices around their spending for the foreseeable future – although we may see an increase in gifting to family members looking to get on, or move up, the housing ladder given the stamp duty holiday. 
 
“At Key, at the onset of the crisis we were proactive in amending both our advice philosophy and our approach to identification of vulnerability. Our focus has been on supporting customers who have specific needs rather than unmet desires.  With people unable to go on holiday or spend money on age proofing their home, the responsible approach has been to advise them to wait until the market returns to more normal trading conditions and they could make sustainable long-term decisions.”   
 
PRODUCT MIX:
Across the six months nearly three-quarters (72%) of plans taken out were drawdown enabling customers to manage their borrowing compared with 28% which were lump sum mortgages. During H1 2020, there were an average of 387 products on the market with 41% allowing interest repayments and 63% allowing ad hoc capital repayments. 
 
Equity release customers benefited from low interest rates to switch plans for more competitive deals – one in eight (12%) of customers changed plans to manage existing loans or increase their borrowing compared with 5% in H1 2019.
 
UK WIDE PICTURE:
Key’s Market Monitor, which analyses data reflecting the whole market, shows plan sales rose in two of the 12 regions across the UK with the North of England recording a 7.4% increase and the South West 1.4% growth.
 
They were also the regions recording the smallest falls in the value of equity released along with Yorkshire and Humberside. The South West saw a 3.2% fall compared with 6.9% in Yorkshire & Humberside and 9.9% in the North
 
The South East remained the biggest-selling region for plan sales accounting for one in four sales across the UK and for 30% of all property wealth released in the six months. London was only the fourth highest selling region behind the South West and West Midlands.
 
The table below shows the breakdown across the country:
 
Region Number of plans sold 2020 H1 Number of plans sold 2019 H1 Total value of new equity released 2020 H1 (£ million) Total value of new equity released 2019 H1 (£ million)
South East 4,879 5,422 £434.291 £476.225
London 1,762 2,332 £252.291 £296.605
South West 2,266 2,235 £172.009 £177.700
West Midlands 1,772 1,953 £106.077 £123.929
East Midlands 1,556 1,802 £92.096 £112.671
North West 1,984 2,012 £103.443 £116.978
East Anglia 1,360 1,739 £92.333 £120.719
Yorkshire & The Humber 1,410 1,431 £73.769 £79.241
Scotland 1,113 1,187 £58.496 £66.706
Wales 866 1,141 £43.578 £65.317
North 710 661 £32.998 £36.621
Northern Ireland 191 210 £9.214 £10.267
UK 19,870 22,126 £1,470.589 £1,682.985
 
 
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

Page last updated: Monday 27 July 2020