26th November 2019
Quarterly figures from the Equity Release Council have revealed that the ER sector is continuing to grow at a staggering rate, with over £990 million worth of property equity being released by customers in the three months to September and almost 11,500 new customers recorded over the same period- an 8% and 6% respective rise on figures for Q2. Annual turnovers are projected to achieve somewhere in the region of £4 billion, with over 40,000 new customers expected to have taken out an equity loan by the end of the year. And, while overall growth has slowed in comparison to the double-digit returns of the last five or six years, the current figures show that the industry is continuing to achieve substantial market gains irrespective of the decline in house prices, the uncertainties surrounding Brexit and the increasingly conservative outlook found amongst many financial consumers.
Moreover, with figures from the Office for National Statistics projecting a 23% increase in the number of people aged 50 or over by 2040 and a 44% increase in the number of people aged 70 or over within the same time-frame, only the most blinkered or prejudiced of commentators would deny that the scope for long-term growth within the ER sector is almost unlimited. Indeed, recent research by More 2 Life has revealed that the later-life lending market is expected to virtually double over the next ten years, with lending figures predicted to reach £548 billion by 2029 as custom bases and levels of consumer debt continue to soar and pensions amounts fall. And, with the explosion in product choices and interest rate options over the last 12 months starting to cater to a wider range of lending circumstances than ever before, there is every reason to believe that 2020 will provide a significant springboard for wider popular appeal and commercial viability- a signpost for future success, if you will. For example, figures provided by the ER referral service, Key Partnerships, have revealed that the number of equity release products has almost doubled since the start of the year, with well over 300 options being offered by lenders in November (as opposed to 161 at the end of 2018) and new products being launched every 48 hours- a staggering upturn. Moreover, the range of features has also expanded significantly, with products supporting the protection of inheritance amounts having grown by 43% since January, fixed early repayment charges by 44%, one-off repayment amounts by 77% , downsizing protection by 103%, lending on sheltered or age-restricted properties by 241% and plans which allow for regular interest payments by 710%.
Additionally, as widespread competition between lenders continues to intensify, so too are interest rates being pushed to all-time record lows, with average rates of 5% being offered on over 50% of lifetime mortgage deals and some being offered for as low as 3%. And, while there is every chance that these will rise again at some point in the future, there can be little argument that the growth in cheaper deals has helped to dispel many of the popular misgivings associated with compound interest rates and to transform consumer attitudes to equity release for the better. Indeed, one of the ways in which this sea-change is currently being felt is by the recent upsurge in demand for drawdown products, with figures provided by Key’s Equity Release Market Monitor revealing that the number of new plans taken out in Q3 rose by 12% on a year-to-year basis – a considerable swing. And, while some within the industry have suggested that on-going economic uncertainty is encouraging clients to adopt a more cautious approach to borrowing, there is also significant evidence to suggest that the sheer flexibility of these products is beginning to appeal to customers who had previously rejected using equity release at all.
Nevertheless, while there is an undeniable basis for future market growth already in place, there is also a need to encourage and support that growth by strengthening the industry’s commitment to the education of client-bases. Indeed, research conducted by Canada Life has found that over two-thirds (or 67%) of advisors believe that a greater emphasis on education will be vital to making ER more attractive and accessible to consumers in 2020, with around 15% of homeowners currently saying that they wouldn’t consider using ER as a retirement option because they don’t understand it (up from 5% in 2016). The research has also found that the number of advisers who expect the ER market to expand over the next year has more than doubled (from 31% in 2018 to 69%), thereby placing a considerable onus on advisers themselves to provide the foundation for such a push. However, recent studies have suggested that many advisers lack a decent knowledge of current market conditions or product options and are less confident about discussing ER with their clients as a result. Which raises an urgent need within our own industry to offer better levels of education and support to the advisory community and to provide the kind of guidance and resources needed to raise levels of awareness, particularly if we wish to bridge what many spectators regard as an advice gap at the heart of the later-life lending landscape.
Thankfully, there are already a number of lenders and organisations rolling out guides, webinars and other digital support platforms designed to achieve such a goal and this should be encouraged as a matter of urgency going forward. Because, if we can help advisers to engage with consumers on a better informed footing and to convey the considerable advantages of equity release in a way which is easy to grasp, then 2020 will be ours for the taking.
