Equity release market remains buoyant
Despite the difficult economic and market conditions over the first quarter of 2008, the equity release market remains buoyant with more than £290 million released from UK homes over that period.The Equity Release Market Monitor Report released from Key Retirement Solutions, the leading independent specialist adviser, found that while demand for plans fell over the quarter, the average amount released increased from £48,000 to £53,000 as more than 6,000 retirees took equity from their homes.
Dean Mirfin, Business Development Director at Key Retirement Solutions said: "It has been a difficult start to the year for many people as the fall out of the credit crunch has hit home and we are faced with volatile and uncertain economic and market conditions. Gross lending on traditional home loans is down 6% year on year in February alone, and it is unsurprising that we have also seen a slight downturn in the number of equity release plans taken out across the whole of the first quarter this year, compared to last year. However, the equity release market remains strong, with more than £290 million released from UK homes over the last quarter.
"Unlike the mainstream mortgage market we have not seen an upheaval in either rates or the ability of providers to lend. This is testament to the fact lenders are fully committed to the equity release market. We have seen positive increases in the number of enquiries as the quarter has progressed which once filtered through to the second quarter should reflect positively in the results at the half way stage of the year."
"If there is to be a period of unsettled property prices, those considering equity release may well be wise to lock into a deal sooner rather than later. Interest rates are still very competitive with rates as low as 5.99% fixed for life, and arranging the facility now may help reduce disappointment should there be any reduction in property prices."
Popularity of drawdown continues through to 2008
Drawdown, whereby you decide on a maximum amount of equity you want to release and then ‘drawdown' the cash in stages when you want it, continues to be the plan of choice for most retirees. With a 29% increase year on year in the number of drawdown plans being taken out, drawdown accounted for nearly two-thirds (62%) of all plans taken out in the first quarter of 2008.
The demand for home reversion plans - whereby you sell part or all of your home to a reversion plan company in exchange for a lump sum - remained steady. Following the introduction of FSA regulation in April 2007, home reversion's market share remains at 5% of all plans taken out. Standard lifetime mortgages, where a cash lump sum is given at the start with no monthly payments to meet, has declined proportionally as a result from 54% to 33% of all plans taken out in the first quarter.
Dean Mirfin commented: "One of the benefits of a drawdown plan is that you only pay interest on the amount released, so interest could accumulate more slowly than with a regular lifetime mortgage. As such, it does not come as much of a surprise that more and more retirees looking to release equity from their home choose this as their preferred plan."
The age of the equity release consumer falls year on year
One of the interesting trends from the previous Market Report was that for the second time in the nine years Key Retirement Solutions has been monitoring the equity release market it saw a fall in the average age of their customer, from 69 to 68 years. This trend continues with the average age falling in the first quarter year on year. Northern Ireland leads the way showing a clear decrease from 67 years in the first quarter of 2007 to 65 years in the first quarter of 2008.
Regional trends
Despite the overall number of plans decreasing in the first quarter of 2008, the North of England and Yorkshire & Humberside saw no fall in demand. It comes as no surprise that London and the South East are the regions that see the biggest sums of equity being released in the first quarter of 2008 - £89,530 and £72,903 respectively from each household, followed by Northern Ireland that has seen a 29% increase up to £67,041.
Uses of equity release
The Report found that the main use for equity release in the first quarter of this year was to make home or garden improvements (61%), followed by taking a holiday (35%). However, one in three (33%) used the equity to repay existing debts on loans or credit cards; a fifth (17%) used the cash to clear their outstanding mortgage and a further 15% used the money to get by on a day to day basis paying regular bills.
Dean Mirfin comments: "As more and more people are tightening their belts including banks and lenders alike, it is no surprise that consumers are increasingly nervous about their finances. This highlights the need more than ever to seek independent financial advice, while equity release can provide financial relief it is not always the right option for everyone. By seeking independent financial advice you are not committing yourself but making sure you are looking at all options available.
"For anyone looking to release equity from their home, our independent guide to equity release is the best place to start. This can be obtained by calling 0800 531 6010 or visiting our website www.keyrs.co.uk where the guide can be downloaded."