Equity release market shrinks 34% in second quarter

A total £698m of property wealth was accessed by older homeowners in the second quarter of 2020, a figure down by 34% from the previous quarter, according to new data published by the Equity Release Council (ERC).

The Council’s Q2 2020 equity release market statistics revealed that the drop was worth almost £400m, down from the £1.064bn recorded in Q1 2020.

The ERC stated that the 7,341 new equity release plans taken out between April and June was the lowest seen in any quarter in the last four years since Q2 2016 (6,671) and represented a fall from 11,079 in Q1 2020.

This drop also reflected wider lending trends, the ERC added, as the Bank of England data for April and May shows that gross lending secured on dwellings was down 36% from February and March.

May was the quietest month for new plans before initial signs of recovery followed in June as the Government announced the easing of some lockdown conditions.

“Equity release market activity continued to mirror wider economic conditions, with the confidence of early 2020 giving way to caution as households assess the impact of coronavirus on everyday life,” ERC chairman, David Burrowes, said.

“Careful precautions have kept the market open to those who wish to choose the option of equity release and ensured customers have access to property wealth to help meet important financial and social needs. That said, the fall in the number of new plans and fewer returning customers accessing extra funds are clear signs of people pausing to see how the wider situation unfolds.

“Releasing equity is not a suitable choice for everyone, and our focus is on ensuring customers' interests are protected at every stage of the process through structured financial advice, independent legal advice and clear product safeguards.”

The data showed that the total number of customers – new and returning – that were served in Q2 was 13,617, a figure that fell from 21,884 in the first quarter of the year (-38%) and 20,866 in Q2 2019 (-35%).

The second quarter of the year also saw 5,608 customers returning to take extra drawdowns from their agreed reserves, compared to 9,805 in the previous quarter. The ERC suggested that customers held back from making further drawdowns from existing plans or seeking further advances as they waited to see the long-term impact of COVID-19.

“Today’s findings highlight the direct impact coronavirus has had on the housing market with the later life lending sector being no exception,” commented more2life CEO, Dave Harris.

“The fall in equity release market activity during Q2 reflects the trends seen more widely across the UK, with many consumers spending less, particularly when it comes to large purchases, meaning the need to borrow has lessened.

“However, while some older homeowners will look to take a more cautious approach to borrowing over the short-term, others will need to look at all their assets as they carefully plan their finances. The later life lending sector has worked hard to keep the market open during these unprecedented times, ensuring borrowers who need to access their housing equity have been able to do so.

“Overall, the strong underlying trends that have driven the lifetime mortgage market in recent years remain and we would expect to see a gradual return to pre-crisis lending volumes later this year.”

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