Demand for equity release plans rise

The demand for equity release plans by the British public shows little sign of slowing, revealsKey Retirement Solutions’ Market Monitor, which tracks activity in the UK equity release market. Year to date, the demand for equity release plans has risen by nearly 10% compared to 2006, with over 22,600 plans, worth more than £1 billion, taken out so far in 2007.

The demand for drawdown policies - whereby a consumer decides a maximum amount of equity to release and then ‘draws down’ the cash in stages - continues to increase, now accounting for nearly half of all plans (48%) compared to 19% last year. The standard lifetime mortgage, where the whole loan is advanced at the outset, now accounts for just 46% of all lending, down from 74% in the first nine months of 2006. Home reversion plans have dropped slightly to 5.4% of total lending compared to 7.1%.

Dean Mirfin, Business Development Director at Key Retirement Solutions comments: “The report shows that demand for equity release continues to grow in all regions of the UK, despite the volatility in the credit markets and speculation over movements of the base rate over the last few months. While rates for some products have increased, borrowers have been able to take advantage of some very competitive deals, particularly if they seek advice from a specialist adviser. Conditions in the market remain positive, and we expect that the last quarter will produce strong results.”

An interesting trend that has emerged from the Market Report is that a greater share of equity release business is coming from the intermediary market, as opposed to direct from providers. The trend is expected to show that by the end of 2007, over 60% of new business will be generated by intermediaries compared to 40% in 2005. This will mean that intermediaries this year will write in the region of 6,000 more plans due to this change.

The Key Market Monitor also reveals that the average age of an equity release customer is continuing to fall. Key’s half year report, issued in July, found that in the 9 years that they had been monitoring the equity release market, Jan-June of 2007 was the first time the average age of an equity release client fell – from 71 years to 70. Yet, the updated monitor for the year to date shows that the average age has fallen again to 68 years. This can be attributed to a number of factors – the availability of equity release plans from age 55, the increasing popularity of drawdown plans and perhaps a continuing trend for people to release equity at a younger age to help bridge the pensions / savings gap. Key expects this trend to continue.

Dean Mirfin continues: “The strong growth in demand for equity release plans highlights the greater awareness the industry has gained and how it continues to develop. Better flexibility and more transparent products have considerably shifted the normal equity release trends, and helped make it a suitable option of many more people to access the money locked in their homes.”

Across the UK, demand for equity release is up in every region. The South East continues to dominate with more than 4,780 plans taken out, and at the highest value - £260 million (compared to £228m in 2006). The South West at £150m and London at £149m, were the next highest regions for the amount released. The North West, with 3,156 plans taken out so far in 2007, and the South West, with 2,756, were again in second and third place respectively for the number of plans sold.

Northern Ireland has experienced spectacular growth to date in 2007, with more than £13m released compared to just £3m over the same period last year, with an almost threefold increase in the number of plans. This reflects the rapid rise in Northern Ireland’s property prices, improved availability of equity release products and an expansion in the number of advisers operating in this area.

Equity release also continues to gain in popularity in Scotland, with both total lending and the number of plans taken out seeing more than double the levels compared to the same period in 2006. Surprisingly the average amount released in Scotland fell by 10% year on year from £43,000 in 2006 to just under £39,000 in 2007.

Two regions bucked the trend and experienced a marginal drop in the number of plans compared to last year: the North West (-5.5%) and the West Midlands (-9%). However even in these regions total lending was up due to the growth in average value released.

Dean Mirfin concludes: “We are also firm believers that non-one should commit to any form of equity release without first seeking independent and specialist advice. This is why all our advisers are trained to the highest standards.

“Our independent guide to releasing equity from your home is the best place to start for anyone investigating the option of equity release and discusses the alternatives too. This can be obtained by calling 0800 531 6010 or visiting our website where the guide can be downloaded at www.keyrs.co.uk.”