Nearly 18 per cent of customers are using some or all of equity release funds to pay off their mortgages, while 22 per cent are using the money to clear credit card debts or loans.
The demand for equity release saw a marked increase for the second year running, a market monitor from Key Retirement Solutions (KRS) found, with the average customer releasing £52,268 in funds from their property, up nearly 7 per cent on the previous year.
Speaking at a briefing on the report, based on statistics from 5,000 customers throughout 2012, KRS Group Director, Dean Mirfin, said that the ongoing squeeze on pensioner income and the ticking time-bomb of interest-only mortgages was incentivising UK residents to the market.
Lending rises
Total funds released climbed 15 per cent to £961.41 million from £832 million, taking the market nearly back to it’s 2009 level when more than £1 billion was lent.
However, once untapped drawdown funds of £415.6 million – which have yet to be released – are added in, the total released was nearer to £1.4 billion.
The largest number, 57 per cent, used equity release to make improvements to their home or garden, while the next highest sum, 31 per cent, used the drawn down funds to treat family and friends. The latter figure is up from 25 per cent last year, with Mirfin suggesting that this is due to grandparents helping their grandchildren with the costs of attending university.
Regions
In terms of regional divisions, the highest year on year change was seen in Northern Ireland, where plans were up 31.6 per cent following a dip the previous year.
Scotland saw plans up 19 per cent and total lending at the highest of any region, at 39 percent and totalling 46.5 million.
Mirfin explains that Scottish residents only site home improvements as a reason at less than 50 per cent of the percentage for the whole of the UK. Instead they are releasing equity to fund day to day expenses.
London residents were releasing the highest average value in equity on their homes at £99,558 due to the high cost of property in the capital, yet in percentage terms North West residents released the highest loan-to-value at 28 per cent.
Average age
The average age of the equity release customer was 70 years old in 2012, with Mirfin stating that this generation are “the last to retire on reasonable pensions.”
Rather than releasing equity upon retirement, they spend for three to five years before realising that their capital is running out, he says.
Many retirees are building up credit card debt, according to Mirfin, and some will not pay off the debt before they die.
“Things can spiral; a person on a £40,000 wage during his working years could have four credit cards with high credit limits which aren’t reviewed upon retirement.
“The biggest debt we’ve seen is £90,000. People in this position can turn to equity release as a solution as bad credit ratings don’t effect eligibility”.
The only thing that could hinder the process, says Mirfin, is if the property is in a poor state. “If it’s mortgageable it should be fine.”
He expects the average age of equity release clients to “creep down gradually” over the coming years as pension pots become lighter and lighter.
Couples
Statistically equity release is a largely couples dominated market, 63 per cent of customers in a relationship. Among singles females are more than twice as likely (25 per cent) as men to choose to opt for equity release.
Plan sales climbed 6.3 per cent during the year to 19,975 from 18,510 with drawdown plans enabling customers to benefit from lower borrowing costs as they can take funds when required, rather than in a lump sum.
Mirfin comments: “Equity release is firmly established on the growth path driven by innovation and a focus on expert advice.
“The increase in the average amount being released is significant as it demonstrates increasing confidence in the market as a solution to the continuing squeeze on pensioner income from low savings rates and falling annuity rates.
“Innovation in the market is continuing with the launch of plans designed to help clients tackle the issue of funding interest-only mortgages into retirement. Plans are now available enabling clients to pay interest and release funds which is a direct response to the interest-only ticking time bomb problem.”
