Interest-only mortgage borrowers are contributing to the expanding equity release market as property wealth pays out GBP7 million a day to pensioners, according to analysis from over-55s finance specialist Key Retirement.
More than one in five (22 per cent) customers used property wealth to clear mortgage debt in the first three months of the year, with lump sum plan sales climbing to more than two-fifths of the whole market, Key’s Q1 Equity Release Market Monitor shows.
Mortgage repayment is expected to increase, with around 10,000 borrowers a year between now and 2020 coming to the end of interest-only loans.
Key’s data, which follows the Equity Release Council’s recent record first quarter figures, provides deeper insights into market trends and highlights how the growth in lump sum plan sales underlines the demand from customers using the maximum amount available.
Customers are on average releasing GBP73,610 of property wealth and as much as GBP117,000 in London. The average house price for equity release increased to GBP322,400 – around 50 per cent higher than the average UK house price of GBP217,502 – and was nearly GBP600,000 in London.
Plan sales rose by 88 per cent in the South East of England and by 75 per cent in the East Midlands against 58 per cent for the UK as a whole, while the value released grew by 89 per cent in the East Midlands and by 78 per cent in the South East compared with nearly 53 per cent for the UK as a whole.
Key’s data shows GBP633 million of property wealth was released in the first three months of the year compared with GBP414 million for the same period last year, with a total of 8,604 plans sold compared with 5,447 in Q1 2016.
Most of the wealth is being used to fund home and garden improvements with 62 per cent of customers releasing money to enhance their homes, and with nearly a third (32 per cent) using the cash to fund holidays. However, 30 per cent are clearing credit card and loan debt.
Dean Mirfin, technical director at Key Retirement, says: “The pace of growth in the equity release market is accelerating rapidly and the year-on-year expansion this quarter underlines how property wealth is contributing to financial planning.
“Equity release customers are able to tackle a wide range of issues and the increasing popularity of lump sum plans underlines how record low rates for plans are providing vital support for retirement planning.
“With more than one-in-five releasing equity from their homes to repay mortgages as the first major wave of interest only mortgage maturities hits, it is certain that demand from people facing capital repayment deadlines will look to equity release as a solution.
“That makes it even more important for mortgage lenders to start engaging with equity release as a potential solution for their customers. Many are, but unfortunately not enough.”
Across the country all 12 regions saw growth in the number of plans sold, and only Scotland saw a marginal drop in the total property wealth released. More than half of the total property wealth released was in the South East and London, while the South West saw the second highest number of plans sold in the quarter.
Around 58 per cent of all sales were drawdown plans, including enhanced drawdown which offers enhanced terms to people with health or lifestyle conditions, compared with 41 per cent from lump sum single advance lifetime mortgages including enhanced products.