Older Homeowners Focus on Paying Off Debt and Helping Family
18 November 2020
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New figures from Key's Q3 Market Monitor highlight that the market has returned to more normal trading conditions with £884 million being released over the period – this is a boost from Q2 (£521 million) when the market was hit by the initial shock of the pandemic but in line with Q3 2019 (£887 million).
The report from the UK’s leading equity release adviser revealed that the number of customers has also dropped by 9% YOY - 11,772 (Q3 2019) to 10,671 (Q3 2020) – as clients focused on essential spending such as debt repayment and support for their wider families.
Spending Focused on Financial Security:
Almost half (47% or £415 million) was spent on clearing debts while a quarter (25% or £221 million) was used to support family and friends via gifting. Around 11% (or £97 million) of the amount released is spent on home improvements - mainly for age-proofing houses so people can stay in their homes – while just 3% (or £26 million) was spent on holidays.
The Q3 figures build on the trend seen across 2020 toward customers using equity release to make their finances as robust as possible by cutting their outgoings. Spending on more aspirational categories like home renovations (-6% to 11% in Q2 2020) and holidays (-5% to 3% in Q3 2020) fell steadily over the last nine months.
| Uses of Equity Release Based on Value | |||
| Uses | Q1 | Q2 | Q3 |
| Mortgage Repayment | 25% | 31% | 30% |
| Debt Repayment | 12% | 13% | 17% |
| Gifting | 21% | 21% | 25% |
| Home Renovations | 17% | 14% | 11% |
| Holidays | 8% | 4% | 3% |
Will Hale, CEO at Key, said: “In Q3, we saw a return to more normal market conditions driven by many customers looking to make their finances more robust by reducing their outgoings and/or supplementing their income. While the payment holidays offered by big residential lenders have certainly benefitted many, older borrowers who either fear redundancy and a tough climb back into work or early retirement have looked to use equity release to reduce the financial pressure they are feeling. Safe in the knowledge that not only are rates at historic lows but through modern flexible equity release plans they can service interest or make ad hoc capital repayments if they so wish to mitigate the impact of roll-up interest.
“Others have seen the Stamp Duty Holiday as the ideal time to help younger relatives onto the property ladder and we’ve seen £221 million being gifted with much being pumped into the housing market with recipient’s receiving an average of £57,549 to support their dream of owning a home. The market is maturing and is now very much focused on essential rather than discretionary spending.”
Number of Plans Fall but Amount Release Remains Static:
Plan sales in the three months to September 30th dropped 9% to 10,671 from 11,772 year-on-year while the value of property wealth released was virtually unchanged at £884 million compared with £887 million (Q3 2019).
However, that does not tell the entire story as 2020 has been an unprecedented year for the market and the recovery between Q2 and Q3 should be noted. Indeed, 30% more plans were taken out between Q2 (8,374) and Q3 (10,671) and the value of the equity release also rose sharply from £521 million (Q2) to £884 million (Q3) as we returned to more normal trading conditions.
| Q3 2019 | Q2 2020 | Q3 2020 | |
| Number of plans taken out | 11,772 | 8,374 | 10,671 |
| Value of plans taken out | £887 million | £521 million | £884 million |
| Average amount released | £75,300 | £82,393 | £82,827 |
Older homeowners on average released nearly £83,000 in property wealth during the three months compared with £75,300 in the third quarter of 2019 as they focused on repaying borrowing such as mortgages.
Around two-thirds of plans (67%) taken out were drawdown enabling customers to manage their borrowing with 33% of customers using lump sums plans. Interest rates in the three months started from 2.47% with the average customer paying 3.05% - the lowest average rate on record.
Will Hale, CEO at Key, said: “While it is hard to predict what the market might look like at the end of 2020 what we can say is that demand remains strong and now more than ever there is a focus on providing the right type of advice for customers.
“Less than 15% of those who enquire about equity release end up taking a plan. Instead they downsize, find support from family or decide, with guidance from their adviser, that other later life lending products may or be suitable e.g. retirement interest only mortgages or whilst equity release wasn’t right for them at the moment it might be an option to revisit in the future. Those who did take out equity release used it for a variety of reasons including repaying debt to make themselves more financially secure and helping to support their wider families. Holidays and home renovations now account for under 15% of the funds released.
“As an industry, the pandemic forced us to re-evaluate our approach to serving customers and truly embrace technology. Video conferencing, digital signatures and faster processing will benefit our current and future customers. There will be tough times ahead, but the market remains strong and will continue to evolve to ensure that products and advice services are well positioned to help customers use their housing equity to navigate through later life.”
Trends Across the UK:
Key’s Market Monitor, which analyses data reflecting the whole market, shows plan sales rose in two of the 12 regions across the UK with Scotland seeing growth of 8% and the North West an increase of 3%. Plan sales in the West Midlands were unchanged year-on-year.
Scotland also saw strong growth in the value of new equity released at 7%. Another four regions saw increases with the South West recording the largest rise at 8% followed by the West Midlands on 8%. The South East and London – traditionally among the strongest regions – saw increases of 5% and 1% respectively.
Nearly a quarter of all plans were sold in the South East and the combined London and the South East accounted for around half of the new equity released in the three months at £437.79 million. The North West saw the second highest number of plans sold in the country but only the fifth highest amount of new equity released.
The table below shows the breakdown across the country:
| Region | Number of plans sold Q3 2020 | % change on Q3 2019 | Total value of new equity released Q3 2020 (£ million) | % change on Q3 2019 (£ million) |
| South East | 2,538 | Down 10% | £260.473 | Up 5% |
| London | 1,078 | Down 11% | £177.319 | Up 1% |
| South West | 1,150 | Down 10% | £96.657 | Up 9% |
| West Midlands | 997 | Unchanged | £68.502 | Up 8% |
| East Midlands | 921 | Down 1% | £60.217 | Down 1% |
| North West | 1,173 | Up 3% | £64.040 | Down 5% |
| Scotland | 749 | Up 8% | £40.205 | Up 7% |
| East Anglia | 596 | Down 25% | £35.967 | Down 25% |
| Yorkshire & The Humber | 658 | Down 27% | £34.179 | Down 27% |
| Wales | 429 | Down 26% | £26.689 | Down 23% |
| North East | 315 | Down 1% | £17.053 | Down 14% |
| Northern Ireland | 67 | Down 43% | £2.547 | Down 49% |
| UK | 10,671 | Down 9% | £883.855 | Unchanged |