Product innovation continues to broaden the appeal of equity release to suit a widening array of needs in later life and as the UK population ages ever more so to does the surge in Lifetime Mortgages.
Equity release lending has been instrumental in enabling more people aged 55 and over to access mortgage finance. The Equity Release Council says that the growing appeal of life time mortgages is fuelled in part by safe products backed by regulated financial and independent legal advice.
This safer environment has meant that, for a third successive year, the lifetime mortgage segment has seen the biggest annual increase in customer numbers compared to all other mortgage market segments.
It is estimated that lifetime mortgages now account for around a third of all mortgages taken out by people from their mid-50s onwards.
A recent Equity Release Council report shows that over the course of 2018, homeowners over-55 years of age accessed 50p of housing wealth for every £1 of savings withdrawn through flexible pension payments. This further highlights the increasing role of property wealth as a supplementary source of funds in later life.
Research conducted by the Equity Release Council also outlines that single women over 55 accounted for over 25 per cent of new equity release agreements in the latter half of 2018, which was a 50% increase on 2017.
However, it is interesting to note that while total UK annual equity release lending activity grew for a seventh consective year to reach £3.94bn in 2018, the average amounts of property wealth withdrawn remained broadly stable.
This growth in activity indicates that is due to a broader uptake rather than increasing loan sizes amongst existing equity release borrowers.
Rising demand across all UK regions, with the Midlands seeing strongest recent growth
The Equity Release Council’s analysis also suggests that consumer demand for equity release is rising across the UK, with double-digit growth in the uptake of lifetime mortgages visible across every UK region.
Over the last five years, London has evidenced an uptake of 138% whilst East England has seen a massive 158% surge in life time mortgages. Whilst many areas including Northern Ireland have growth fixtures over 100%, South West UK saw a 99% rise yet North West England has seen the lowest rise in consumer demand of just 61%.
Equity Release Council Standards
At the start of 2019, the range of life time mortgage product options that meet the Equity Release Council standards had doubled, giving mortgage advisors wider options and this has been instrumental in fuelling the surge in lifetime mortgages.
Whole of Market Mortgage Broker Tony Higham says that “It is fair to say that confidence in life time mortgages is growing as the product options available to borrowers are evolving. Greater flexibility and peace of mind are essential to older borrowers and that the number of products that meet the Equity Release Council standards is continuing to grow can only be good for the borrower.”
For 25 years, the Equity Release Council has represented the equity release sector and exists to promote high standards of conduct and practice in the industry with consumer safeguards at its heart.
The ERC product standards for Life Time Mortgages are as follows:
- For lifetime mortgages, interest rates must be fixed or, if they are variable, there must be a “cap” (upper limit) which is fixed for the life of the loan
- You must have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence and you abide by the terms and conditions of your contract
- You have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan
- The product must have a “no negative equity guarantee”. This means that when your property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more.
Research from Canada Life shows that more and more independent women are turning to lifetime mortgage borrowing to subsidise their later life.
In its research Canada Life found that on average woman over 55 believe they will need £1,421 a month after tax to live comfortably into retirement. However, the average UK single female pensioner receives nearly half of that, of £206 a week.
The World Economic Forum says that the average British women will outlive her savings by 12 years.
Canada Life Home Finance head of marketing and communications Alice Watson says: “The outlook for women in retirement is concerning… however, what we are seeing more immediately is that women are being resourceful. They are aware of the fact that the wealth in their property can help them.
“The growth in women using lifetime mortgages demonstrates how equity release can fill the pensions deficit faced by women in retirement.
“An additional demographic shift which points to a continuation in the trend of single women taking out more lifetime mortgages, is the increasing number of people living alone.
We expect the trend of people using their property wealth to help relieve some of this pressure to continue.”
The Equity Release Council recently announced a range of initiatives at its Annual General Meeting (AGM) [24 April 2019] to help firms deliver the high standard of support for customers that the ERC demands of those in the sector. The ERA AGM will be a future benefit for borrowers exploring equity release and later life financial planning as the market continues to grow and evolve, and so to the extra demands of regulation and best practice.
The initiatives are designed to support both new and existing practioners in an increasingly active and diverse market, at a time when there is growing demand for advice on later life finances driven by the UK’s ageing population.