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C-19 driven equity release demand dip

15 July 2020

Homeowners aged 55 and over released £1.47 billion worth of equity from their property in the first half of 2020, but the effects of the Coronavirus saw the number of customers fall compared to the previous year.  

According to Key’s Equity Release Market Monitor, the number of plans taken out during the first six months of this year dipped 10% to 19,870 from the same period of 2019. Meanwhile, property wealth value released fell 12.6% from £1.68 billion in the first half of 2019 to £1.47 billion in 2020 as lower second quarter volumes impacted total figures.

Between the first and second quarter of 2020, the market saw a 27% fall in the number of customers using equity release and a 45% fall in the amount of new equity released. While some of this may be due to increased caution among customers, Key said demand has remained strong so servicing challenges during lockdown are also likely to have played a role in the lower numbers.

The total market including unused drawdown facilities was worth £2.04 billion in 2020, compared with £2.38 billion in the first six months of 2019.

Will Hale, CEO, Key, said: “The unprecedented circumstances the UK and the world finds itself in due to the coronavirus has been reflected in the significant slowdown in the equity release market in the second quarter. Whilst the sector has been remarkably resilient in adjusting working practices in the face of lockdown to ensure we can continue to help customers, there are a number of knock on effects from the current pandemic.

“Indeed, not only are cases taking longer to complete but it is only appropriate that people are delaying their decision to access their housing equity due to the current uncertainty. That said, demand has remained strong as more customers look to explore how housing equity could help support them in later life and, as we move to more normal trading conditions, we are confident that these macro drivers will ensure that we will return to growth by year end and into 2021.”

The findings of the survey found that while the largest proportion of people (59%) spent some of the equity released on home or garden renovations, only 16% of the funds were spent on this use. Instead, repaying mortgages (24%) and gifting wealth (21%) were found to be more popular, with the first half seeing a trend towards using the money to secure finances rather than discretionary spending, including a 4% drop in the number of customers paying for holidays.

Across the six month period, nearly three quarters (72%) of plans taken out were drawdown enabling customers to manage their borrowing compared with 28% which were lump sum mortgages, Key said.

Hale added: “Q1 2020 was very different from Q2 2020 and it is only appropriate that those customers exploring equity release during the time of the pandemic have been focused on shoring up their finances by repaying debt and supporting their wider families rather than looking to spend money on holidays or home and garden improvements.

“Even with the changes that the Chancellor recently announced, many older consumers are likely to be extremely cautious about their choices around their spending for the foreseeable future – although we may see an increase in gifting to family members looking to get on, or move up, the housing ladder given the stamp duty holiday.”

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