£1.18bn of equity released by retirees in 2008

Looking back over a turbulent 2008 it appears the equity release sector has not escaped unscathed. The 2008 UK Equity Release Market Monitor released from Key Retirement Solutions, the leading independent specialist adviser shows that the number of equity release plans taken out by retirees decreased by 14% from 2007 to 2008. The total amount of equity released in 2008 reached just over £1.18 billion, a 14% decrease in comparison to 2007 (£1.39 billion).

Despite the overall market feeling the effects of the financial crisis, Key Retirement Solutions has bucked the trend reporting an increase in both the number of plans taken out (2%) and value released (4%). This has subsequently increased Key's market share which now stands at 25% of the market as we enter into 2009.

Tracking activity in the UK equity release market, the Key Retirement Solutions Market Monitor found that during the last quarter of 2008 the number of plans taken out was down 8% on the same period in 2007. The average amount released was £47,341, a 10% decrease on the fourth quarter of 2007.

Dean Mirfin, KRS Group Director, said: "Whilst 2008 for the mainstream mortgage market saw a considerable and ongoing decline in the levels of new mortgage business, by comparison the equity release market has had a more resilient year. The past year proved tough for all financial service sectors, however the results for the equity release market show that demand is still strong despite a year of house price deflation and understandably issues of confidence amongst consumers. The industry is well placed as we enter 2009 with a healthier level of enquiries compared to the same point in 2008.

"Although the results for the industry are down as a whole, we are pleased to report that Key Retirement Solutions' figures for the year bucked the market trend. As a result, Key now arranges one in four of all equity release plans in the UK."

Demand for Home Reversion plans remain steady following FSA regulation in 2007, and popularity of Drawdown continues

Tracking the demand for individual equity release products throughout the year, 2008 proved to be another popular year for Drawdown - whereby a consumer ‘draws down' the cash in stages. The number of Drawdown plans taken out increased by 9% in 2008 and now accounts for 60% of all plans taken out.

The demand for standard Lifetime Mortgages - where a cash lump sum is given to you at the start with no monthly payments to meet - showed a decline from 43% to 36% year on year, while Home Reversion plans - whereby you sell part or all of your home to a reversion plan company in exchange for a lump sum - showed a slight decrease, dropping to just 4% of all plans in 2008 from 6% in 2007.

Dean Mirfin continued: "Throughout 2009 it is important that those considering equity release do not get caught out by reductions in their property values. Drawdown plans enable you to lock in a facility which then remains unaffected by fluctuations in property values, and anyone considering equity release should start looking into theses plans. For this reason we would expect to see demand for Drawdown plans increase further still through the coming year."
The age of the equity release consumer starts to climb

Despite reporting a decrease in the average age of retirees releasing equity from their homes in 2007, the latter part of 2008 saw the average age increase, thus pushing up the average age up to 69 years in comparison to 68 for 2007.

Dean Mirfin comments: "The effects of the recent financial turmoil has considerably reduced many people's investments and brought returns on savings tumbling downwards. Pensioners have certainly not been exempt from this, and this in part may be why we are seeing an increase in demand from those deeper into their retirement years."

Regional trends

Most regions were reflective of the industry as a whole and experienced a decrease in both the number of plans taken out and the value released. However, the East Midlands bucked this trend reporting an increase in both the number of plans (by 9%), and the value released (by 5%), totalling £89 million. Scotland was another region that showed an increase in value released, up 3% year on year.

London continued to show the largest average amount released at £92,592, followed by the South East at £67,844. However, both regions showed a slowdown in the number of plans taken out, London reduced by 20% and the South East by 19% year on year.

Despite an overall reduction in the number of plans taken out in 2008, some regions showed positive growth in the last quarter of the year. The North West was the strongest performer reporting a 17.5% increase in the number of plans (1,058 in Q4 2008 compared to 900 in Q4 2007). This was closely followed by Yorkshire and Humberside which showed a 10% increase in the number of plans taken out in the final quarter of the year in comparison to the final quarter of 2007.

Uses of equity release

The Market Monitor continued to show that the most popular use of the equity released from consumers' homes was for home or garden improvements (60%). Over one in three (35%) used the money to go on holiday and 33% used it to help out family or friends - an increase from 22% in 2007. The latter confirms that this volatile market has had an effect on the finances of all ages and that parents in the main do not lose the desire to help their children of all ages.

Many took a sensible approach to their finances, almost a quarter (22%) of those who released equity from their homes used the money to clear outstanding mortgage debt, this was followed by 19% who used it to pay regular bills and 11% who paid off debts such as credit cards or loans.

Dean Mirfin comments: "It comes as little surprise, in the current climate, that we have seen a considerable increase in the number of consumers who are giving some or all of the money away, this increase is the most significant we have ever seen. Lifetime Mortgage interest rates remain competitive and the choice for consumers is better than ever. The industry as a whole is healthily positioned to meet the needs of those approaching or in retirement.

"Equity release can provide retirees with financial freedom in retirement but it's not always the right option for everyone. We firmly believe no-one should commit to any form of equity release without seeking independent financial advice. 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 keyrs.co.uk."