Equity release market remains buoyant

As the global credit crunch tightens its grip on the UK housing market and industry experts predict we are yet to see the worst, the equity release market continues to buck the trend and prosper.

According to the UK Equity Release Market Monitor released from Key Retirement Solutions, the leading independent specialist equity release advisor, the number of plans taken out in the second quarter of 2008 increased by 6.67% compared to the same period the previous year, exceeding more than 8,000 plans.

The Market Monitor, which tracks activity in the UK equity release market, has found that the total amount of equity released by retirees in the second quarter (April-June) of 2008 reached £390 million, a 13% increase on the same period in 2007, bringing the total amount of equity released in 2008 up to just over £680 million.

Looking collectively at the first six months of 2008 (January to June), the number of plans taken out is marginally down on the same period last year (5%), however actual lending for this period has increased from £667 million in the first half of 2007 to £683 million to date in 2008.

Dean Mirfin, Business Development Director at Key Retirement Solutions said: "During the first quarter of 2008 we experienced a decrease in the number of plans and overall lending in the equity release market. Throughout this period however comment from providers and advisers indicated that enquiries were on the increase towards the end of the quarter. This has been born out in our latest Market Monitor: the results of an increase over quarter one were to be expected, however the result for the second quarter compared to the same period last year are most defining.

"Whilst lending in the mainstream mortgage market continues to decline month on month, and in comparison to last year, it is good to see some positive news in the lending arena. The figures show that demand for equity release is strong, and positively, lenders are able to lend to those who want to release money from their homes."

Drawdown continues to lead the way as the plan of choice

As was predicted in the previous Market Monitor, the drawdown market - whereby a consumer ‘draws down' the cash in stages as and when they require it - has increased 9% compared to last year and now holds a 59% share of plans sold in the market (compared to 50% in quarter two 2007).

The standard lifetime mortgage, where a cash lump sum is given at the start with no monthly payments to meet, has continued its decline to 37% from 46% in the second quarter of 2007.

Dean Mirfin comments: "Interest rates in the equity release market still remain competitive. Fixed rates for lifetime mortgages average 6.5%. Whilst reports show a decrease in property values and a slowdown in growth, those requiring equity release are taking the decision to release equity now before further falls may incur. Drawdown also provides an ideal solution in the current climate. Borrowers can lock in a drawdown facility which is protected with most providers against property value fluctuations. This gives peace of mind that funds will be available now, and in the future, without being effected by the volatility of the property market."

Regional trends

Seven of the twelve UK regions experienced an increase in the number of new plans taken out. Northern Ireland continues to be the region with the strongest growth with the number of new plans increasing by 88%. The South East continues to lead the way with the overall greatest number of plans sold at 1,575 and the highest total lending of £102 million.

London continues to outweigh all other regions regarding the average amount released from homes with the average in the second quarter of 2008 standing at £92,622. This is followed by the South East with an average of £72,869 being released and the South West with an average of £66,737 being released.

Uses of equity release

The main use of equity released from consumers' homes continues to be for home or garden improvements (59%). Holidays has overtaken the repayment of debts at 38% and 34% respectively. As the cost of living continues to rise, it is no surprise to find 20% using the money to help out family or friends.

Dean Mirfin concludes: "With considerable stability amongst providers and demand for equity release continuing, we can have a degree of confidence that, as speculated many times historically, those who want to release equity from their homes to maintain and enhance their lifestyles will continue to do so despite difficult economic circumstances. At a time when the cost of living is increasing dramatically, equity release no doubt will play an increasing part in our retirement finances.

"Equity release is not always the right solution for everyone and we would strongly recommend seeking independent financial advice before committing to any form of equity release. 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."