Total funds released rose 5.4% to £959.6 million – the first rise in four years – while plan sales continued the growth seen in 2010 with a 1.6% rise to 22,366 in 2011, the group’s 2011 Equity Release Market Monitor shows.
And once untapped drawdown funds - which have yet to be released - are added in, total lending rose to more than £1.3 billion underlining how innovation through increasing use of drawdown has transformed equity release said KRS.
Customers using drawdown plans benefit from lower borrowing costs because they are able to draw funds when required rather than in a one-off lump sum – sales of drawdown now make up 55% of all plans sold.
That is reflected in the average amount released by customers falling again to £42,921 which compares with £43,519 in 2010 and £48,212 in 2009. Key is concerned, however, that the number of drawdown sales still represent too low a share of the market.
Dean Mirfin, group director at Key Retirement Solutions, said “A robust sales and factfinding process has resulted in Key’s percentage of new drawdown business for the year being 74%, considerably higher than the market average, and we believe that there is still work to be done in the sector to ensure that consumers are not taking on single advance equity release when they do not have a requirement for the funds all at once.
“Factfinds need to identify clearly when funds are required. Drawdown can save consumers many thousands of pounds on the overall cost of borrowing.”
Home and garden improvements remained the most popular use of equity release cash – 57% of customers used some or all of the cash for that with 32% using money to clear debts and 30% to help fund holidays. The numbers using cash for regular bills dropped from 21% in 2010 to 16% in 2011.
Across the country 7 out of 12 regions saw growth in the total number of plans sold with Wales seeing growth of 24% and East Anglia 15%. The North West saw a 8.25% fall in sales.
The biggest growth in total value released was in Wales where total value increased by a third while East Anglia saw totals climb by a quarter. In total eight out of 12 regions saw increases.
Dean Mirfin, said: “The equity release market is firmly established on a growth trend again after several years when the story has been about stagnation at best and decline for some providers.
“Innovation has enabled the industry to turn its fortunes around and the products available now are much more suited to customer needs by providing flexibility and control over the cost of borrowing.
“It is striking that there is around £554 million of undrawn cash ready to be used by customers. It may be they won’t use it or need it but in the past they would have been forced to take more money than they needed.
“Rate cuts and further innovation by providers including more plans offering enhanced terms for customers with medical or lifestyle conditions points to further potential growth this year.”
