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Equity release growth driven by innovation: Equity Release Council

The Equity Release Council’s autumn report details a sector in rude health, showing the number of products on offer increasing significantly and stating that the resultant competition is driving down rates and encouraging innovation.

As of August this year, there were 139 equity release product options on the market as compared to 78 a year ago and more than double the 58 available two years ago.

The Equity Release Council remarks that this growth has contributed to a continuing yearly fall in the average interest rate. As of July this came to 5.22 per cent, down from 5.27 per cent in July 2017, and still further down from the 5.96 per cent seen in July 2016.

The report also describes continuing product innovation and the introduction of more flexibilities. For example, 80 per cent of equity release products in August offer customers the option to make ad-hoc, penalty-free voluntary or partial repayments as compared to 68 per cent of products a year ago.

Furthermore, products with a fixed early repayment charge option also take up more of the market now – from 49 per cent to 51 per cent.

However, it must also be noted that in August 2017, 51 per cent of equity release products had an inheritance guarantee, whereas in August 2018 this had fallen to 46 per cent. Likewise, the number of products with a sheltered/age restricted accommodation option have dropped from making up 42 per cent of the market to 33 per cent.

In terms of product growth and trends, the report shows a 9 per cent increase in the number of equity release plans agreed to in the six months leading to H1 2018 and points to the fact that 1.1m homes in England in 2017 were bought with a gift or loan from family or friends – a post 2007/08 high.

Additionally, the report shows that trust in property as a way to save for retirement is increasing at a similar rate to the trust extended towards paying into an employer pension scheme. From July 2010 to June 2012, 35 per cent of respondents believed an employer pension to be the safest way to ensure a decent retirement. From July 2016 to December 2017, this had jumped to 40 per cent.

The corresponding numbers for investing in a property are 27 per cent and 29 per cent, in all years coming second.

Throughout the years, just 1 per cent of the public believe that investing in stocks and shares is a safe way to save for retirement.

Equity Release Council chairman David Burrowes comments: “As customers navigate their way through a growing range of product choices – including retirement interest-only mortgages – the appropriate advice, guidance and support is needed to weigh up the various benefits, costs, flexibilities and protections to ensure they are suitable to meet both current and future needs.

“Industry and regulators must continue to work to ensure customers are aware of all the options available to them when deciding how best to support themselves and their families in later life, taking all their assets – including pensions, savings, investments and property – into consideration.”

More 2 life chief executive Dave Harris says: “The retirement lending market is expanding, with our own research showing that borrowing by the over-65s will surpass £142bn by 2027.

“One of the keys to continued growth for the equity release market will be finding a greater variety of funding for lenders to help stimulate further product innovation. The industry has traditionally been funded by life insurers, but that pattern is beginning to change as other organisations such as pension schemes and asset management firms, turn towards the equity release sector as a good source of investment return.”

Retirement Advantage equity release head of product and marketing adds: “Homeowners are becoming increasingly familiar and comfortable with equity release and the potential benefits it can bring. We’re seeing a marked shift towards a holistic approach to retirement planning, with property wealth being considered alongside pension pots, investments and other assets. This bodes well for the market continuing its strong growth.”

Finally, Key chief executive Will Hale comments: “Our own data suggests that around 28% of equity release customers are using their property wealth to help families as well as to boost their retirement finances with some looking to property before pension funds aided by the increased innovation and flexibility.

“Customers are using their property wealth to tackle a wider range of issues from helping families to clearing mortgages and general later life financial planning.  Specialist financial advice is key to helping customers make smart decisions and provides an opportunity for advisers demonstrate their expertise and to help clients.”

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