December 16 – Equity Release – not a universal panacea

The world of equity release is evolving.  With a new record lending total of £1.58bn to the end of Q3 in 2016, against a full year number of £1.71b in 2015, it looks likely that we will top £2bn for the first time this year. With new lending up 35% to £633.8m in Q3 itself, the market is on an upward spiral with the average advance now at £75,900.

With only 21% of advances currently being used to repay existing mortgages we can confidently expect this segment to grow in coming years as more people reach the end of their interest only mortgage terms and decide they want to stay in the house they have made a home in.

In contrast to the ever growing value of UK property, the population only has approximately £2.5trn locked up in pension assets, therefore people are likely to increasingly look to this asset as a solution to funding old age.  Total UK housing equity now exceeds £5trn however it is hugely regionally biased.

With over £3.4trn of the total value of UK property (£6.2trn) being in London, the East and the South East, this means that large parts of the UK have much less housing equity to play with.  The £135bn of value in the North East may not do much to supplement pension income, as is the case with the £331bn in Scotland.  Whilst they may be able to release enough to assist with property improvements and holidays, there will not be enough to fund full retirement living.  The risk to society is that this regional variation is likely to continue to drive the feeling that some parts of the country have not been well looked after, that contributed to the Brexit vote.

However, the demand that is likely to come as many people reach retirement with significant housing wealth, but a limited amount in pension assets means that Equity Release can only be a growth market.  Whilst it may not make £5bn by 2020, it is likely to be not long after.

Robert Sinclair
AMI Chief Executive
Dec 2016