Equity Release Holds Steady in 2020 despite Lockdown Complications

The economic impact of the COVID-19 crisis and three national lockdowns is likely to be felt for some time; however, research suggests that the UK’s equity release market coped surprisingly well throughout the turbulence of 2020.

New data from one of the country’s leading equity release specialists suggests that the total value of the UK’s equity release market decreased by just 4% last year. In total, homeowners released a combined £3.4 billion in equity throughout the course of the year, with general equity release activity levels having remained very similar to the year before.

Specifically, £3.456 billion in combined property wealth was released last year—a slight decrease from the £3.595 billion recorded the year before.

Impressive Q4 performance

Even more impressive than the sector’s surprisingly strong performance throughout the year was its prosperity throughout the closing three months of 2020. In Q4, total equity release activity was a total of £1.1 billion, with approximately 9,930 applicants successfully releasing equity in their homes.

One of the biggest drivers of elevated equity release activity throughout the year was the availability of some very low-interest rates. In the fourth quarter of 2019, the average interest rate payable on equity release products was 3.15%. During the same period in 2020, average interest rates had fallen to just 2.8%.

LTV on equity release products held at 26% across all types of equity release schemes throughout the year.

Shifting priorities

Borrowers’ reasons for equity releases also shifted throughout 2020. One of the biggest trends among equity release customers was for the purpose of refinancing or debt consolidation, while many intended to use the funds to support other family members during difficult times.

Many borrowers also indicated their intention to lend or gift the funds to family members for use as deposits on homes in order to take advantage of the Stamp Duty holiday before it expires at the end of March.

Speaking on behalf of Key Retirements, CEO Will Hale outlined his vision of a strong future for the sector over the coming months and years.

“While 2020 is down on 2019, the fact that we have only seen a 4.4% drop in the value of equity released suggests that customer demand remains strong, supported by the efforts of advisers, lenders, and other service providers in this challenging year,” he said.

“Discretionary spending has fallen as equity release increasingly looks to support clients’ aspirations to help their families and make their finances as resilient as possible by refinancing debt. While most people aspire to reach retirement without any mortgage or unsecured debt, this is certainly not possible for everyone and equity release can help to relieve the pressure on these families while still providing avenues for repayment.”

“With the end of the stamp duty holiday on the horizon, it is also not entirely surprising to see that many older homeowners have taken the opportunity to pass wealth down the generations and help children or grandchildren onto the property ladder. While this may change as we head into 2021 and the holiday comes to an end, I suspect the desire to help families will remain a strong driver of this market in years to come.”