Equity release hits 2.5 year peak

Equity Release Council figures show total advances of £224.8m were recorded in Q2 2012 - 22% up on Q2 2011 (£184.8m) and 13% up on Q1 2012 (£199.0m). 

This is also the highest amount of equity released in a single quarter since Q4 2009 (£231.7m).

The number of plans sold grew to 4,302 which is 6% up on Q1 2012 (4,057) and 16% up on Q2 2011 (3,710).

The proportion of customers who choose drawdown plans has continued to increase and they now account for 68% (Q2 2012) of the value of the market (Q1 2012 - 67%). Lump sum mortgages count for 32% (Q2 2012) of the market and home reversions account for 1% (Q2 2012).

This is a significant increase in the number of drawdown plans in just three years (48% - Q2 2009) and highlights how people's use of Equity release is gradually evolving. While at the height of the property boom consumers chose to take out large lump sums, post-credit crunch they are increasingly cautious.

Indeed, it appears that people are choosing to take smaller tranches of funds over a longer period - possibly to augment their income or pay for one off expenses - rather than taking out a large lump sum.

While the equity release market grew the proportion of direct (10% or £23.1m) versus intermediary (90% or £201.7m) business remained steady for the third consecutive quarter.

Andrea Rozario, director general of The Equity Release Council, said: "This quarter has been the most successful period for the equity release market in two and a half years. This clearly shows that there is an appetite for these products and that as life returns to the UK mortgage market, the equity release market is also returning to growth.

"Obviously we are not out of the woods yet and much work still needs to be done to improve consumer understanding of these products. However this quarter's figures indicate that more and more consumers are going to be using their equity to improve their standard of living and pay for costs in retirement.

"Indeed we've seen the market start to evolve and more people are choosing drawdown products rather than lump sum plans as they choose to release equity strategically to pay for specific expenses. 2012 has already been a big year for the Equity Release Council as we rebranded and expanded our membership in June and these figures put us on track to celebrate a very successful year-end."

Roger Marsden, head of at retirement at Aviva, said: "Today's figures from the Equity Release Council clearly show that using housing equity to improve retirement finances is becoming increasingly popular. This is good news for not only the market in general but also for consumers.

"Many facing retirement with a shortfall in their savings are often worried about releasing the equity in their homes to improve their standard of living. However due to concerted efforts from the Equity Release Council, providers and intermediaries alike attitudes are changing. With the reassurance of no negative equity guarantees and the introduction of inheritance guarantees, more people are now taking a holistic view of all of the assets available to them at retirement, including the value held in their own property.

"We believe that today's figures signal a return to positive growth for this market and we expect that 2012 will be a better year for equity release than 2011."

And Claire Barker, chairman of Equity Release Solicitors' Alliance, said: "These figures are great news for the equity release industry and vindicate the hard work specialists have been putting in. Commentators have long predicted that equity release would come into its own as a major part of retirement planning and these figures indicate that this is perhaps starting to be the case.

"The launch of the Equity Release Council has harnessed the varied talents of specialist advisers, solicitors and providers and galvanised their efforts to their obvious collective benefit. An increased focus on raising the profile of the industry both among consumers and in the corridors of power is paying dividends.

"It is important that with the industry growing the highest standards are maintained as more and more consumers engage with equity release. As the number of players in the market decreased during the credit crunch it left a core of specialist advisers and solicitors which has created an excellent standard of financial and legal advice. As the industry expands we must continue to expect excellence to build on the much improved reputation the industry now rightfully enjoys."

Article published on the Mortgage Introducer, 25th July 2012

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