The equity release market has seen continuous growth over the past decade as retirees consider less traditional ways in which to fund their retirement. New figures that we compile for inclusion in our quarterly Equity Release Monitor illustrate the growth of this market and show that the number of outstanding equity release plans has for the first time risen to more than 100,000. This is a clear indication of the increasingly mainstream nature of this area of the retirement funding market.
According to our data, the total number of plans taken out has leapt to 6,292 – up 8.58 per cent on the previous quarter. However, this positive development is contrasted by a fall in the value of plans taken out. In the past quarter this value fell from £277 million to £265 million.
This means that while more people are taking out equity release, the value released per plan has gone down. On average the typical equity release customer across the UK now releases around £1,000 less than in the previous quarter (£44,651 compared to £45,685).
Driving factors
To explain this paradoxical development, we need to look at several factors. Today’s retirees are worried about not being able to rely on the state pension to fund their basic retirement needs, let alone pay for
any extras such as holidays or hobbies.
There is also an increasing awareness of the cost of retirement and the fact that many people can live for a long time after they finish work, which has led to more and more people looking at alternative ways to fund their retirement.
This search for less traditional retirement funding and the considerable amount of equity many over-60s have locked up in their properties has led to the growing popularity of equity release. The steady increase in consumer confidence following the FSA’s regulation of lifetime mortgages has also contributed to the expansion of the market.
However, the property market has started to slow and in some areas has even fallen marginally. This has also seen the value of the average property used for equity release decrease to £191,736 (Q2 2005) from £193,117 (Q1 2005).
This has led in turn to consumers releasing a lower amount of the equity locked in their properties and consequently the overall value of equity release plans has fallen.
Although lifetime mortgages still out-sell reversion schemes, the value of reversion plans sold rose for the first time since 2000. This might be due to the widening perception that the housing market has reached its peak in terms of house prices therefore making this type of plan, which involves the sale of a house, increasingly attractive. It may also indicate a return to popularity for these plans but it is still far too early to say.
The regional picture
Scotland (+60.77 per cent) showed the highest quarter-on-quarter growth in the number of new plans. This illustrates how Scottish homeowners are increasingly taking advantage of the relatively recent growth in the value of their home.
However, Scotland only accounted for 2.5 per cent of the overall number of equity release plans sold in the quarter so market movements are more noticeable in this region.
The East Midlands (+14.18 per cent), London (+8.08 per cent), Wales (+8.27 per cent) and Yorkshire and Humberside (+1.47 per cent) were the only other regions to report positive growth in the number of plans taken out. The North (-19.61 per cent) and South East (-13.38 per cent) saw the greatest fall across all regions.
Scotland (+33.15 per cent) and the East Midlands (+5.41 per cent) also saw the highest growth rates in the value of new plans followed by Wales (+4.43 per cent).
All other regions saw a decrease in the value of new plans with the North (-32.33 per cent) and the South East (-17.12 per cent) at the bottom of the table. However, despite these changes, the South East remained the largest region both in number (1,209) and value of plans sold (£61.8 million).
Steady growth
The national as well as the regional picture indicates that the equity release market is experiencing a steady period of growth that is expected to continue for the remainder of 2005.
However, developments in the housing market as well as the government’s pension policy will have a direct impact on the equity release market. The sector’s attractiveness to customers and any future trends will have to be viewed in relation to these factors.
Nevertheless, with increased consumer protection through FSA regulation and the SHIP code of practice, equity release products are becoming a viable option for more and more retirees.
Dean Mirfin is business development director at Key Retirement Solutions
