More equity release money is going on clearing debt, latest figures suggest

Retired home owners in the UK are using their housing wealth to clear debts to strengthen their finances, new equity release market figures relating to the first quarter of 2019 suggest.

One in three paid off credit cards and loans and 28% cleared outstanding mortgages as total lending in the sector reached £1.18 billion including potential further drawdown borrowing, according to the latest market report from equity release advisor Key.

Indeed, the number of customers using money from their homes to pay off credit cards and loans hit a three year high of 35%, some 5% more than in the first quarter of 2018. In addition, 28% used property wealth to clear outstanding mortgages compared with 21% in 2018.

Key’s data shows the numbers using property wealth to clear debts in the first three months of the year was the highest since the third quarter of 2016 and the third highest on record since Key started the Market Monitor in 2007.

The figures also show that new lending rose to £839.58 million with a further £340.42 million in new potential drawdown facilities also arranged. This takes the value of the market to £1.18 billion up from £1.03 billion in the first quarter of 2018 when there was £777.1 million initial advances and £252.9 future potential borrowing.

Plan sales rose 6.6% year on year to 11,190 compared with 10,495 in 2018. Northern Ireland, the West Midlands and Yorkshire and the Humber recording the biggest increases as growth spread across the country.

Customers released an average £75,032 during the three months and the most popular use of the money remains paying for home and garden improvements. Some 60% of people used their equity release for this purpose with many of these using some or all of the cash to future-proof their home for retirement. While 31% chose to pay for holidays while 30% were able to use some or all the cash to help family.

‘Typically the equity release market has a quieter start to the year but the latest results suggest that we should see continued growth in 2019. The current challenging economic environment has seen a move away from holidays and home improvements to people tackling pressing immediate issues such as to pay off debt,’ said Will Hale, Key’s chief executive officer.

‘Nearing or entering retirement with an income that might be exceeded or matched by debt repayments can be hugely stressful and may mean people need to make fundamental changes to their plans such as working longer,’ he explained.

‘However, this will not solve everyone’s issues and is not even viable for some so looking into downsizing, equity release or other later life lending options might be the right answer. Not only will making sensible choices around property mean that people are less stressed but it will help to set them up for a more comfortable retirement in the future,’ he added.

The figures, which analyses data reflecting both Equity Release Council members and non-members, found the biggest increase in value released was in the West Midlands where total value rose by 24% with the East Midlands and North East seeing gains of 20%.

The biggest rise in plan sales was in Northern Ireland at 39% with the West Midlands and Yorkshire and the Humber recording 26% gains and the North East seeing a 19% rise.

Drawdown plans remained the biggest sellers accounting for 68% of all sales with enhanced drawdown which offers better terms for people with health or lifestyle conditions accounting for 21%. Lump sum lifetime mortgages made up 32% of sales, including 11% of enhanced plans.

According to Dave Harris, chief executive officer of equity release lender more 2 life, the figures provide an interesting look at a market which continues to show year on year growth, even in a quarter which is traditionally the quietest in the year.

‘The increase in the number of clients who are choosing to shore up their finances by paying down debts and mortgages suggests that some of the uncertainly seen in the housing market and the economy is filtering into the consciousness of older home owners,’ he said.

‘However, retirement remains a time to be enjoyed and as we see more asset-rich, cash-poor retirees come onto the scene, it is paramount that the industry is ready and able to serve more of these borrowers,’ he pointed out.

‘Ease and speed are two key elements that consumers are looking for nowadays, and if the equity release market is to keep up with this rising demand, it’ll be key that advisers are on hand and fully equipped to help these borrowers boost their pension pots, shore up their finances and live their retirement to the fullest,’ he added.