Forecasting the future can be challenging especially when uncertainty about the ongoing COVID-19 pandemic is peaking with the Omicron wave hitting across the UK.
However, while the short-term future is certainly uncertain right now, I do think that equity release and the wider later life lending market can look to 2022 with confidence.
Breaking the £4bn barrier
2021 saw a record amount of lending in the equity release market. Around £3bn of property wealth was released to Q3 putting the industry on course to break the £4bn barrier if not touch £4.5bn as the last quarter is traditionally one of the strongest.
Having made it north of £4bn in 2021, I can see the market pushing to £5bn in the coming year depending on what happens in terms of lockdowns.
Plan sales did not grown in 2021, but customers released more equity, with the average released topping £100,000. This has been driven by the fact that clients are using these funds to meet ‘high value’ needs such as gifting to help family onto the property ladder or repaying both secured and unsecured debt to boost financial security. Around three-quarters of the money released in the third quarter went on debt repayment and gifting.
The stamp duty holiday certainly supercharged over-55s gifting aspirations but for a select few, it also encouraged them to move and use equity release to close the gap between their savings and the cost of their new home. It is an interesting development and one that is likely to grow in future.
However, it’s not just about debt and gifting
Over the last 18-months it is fair to say that many people have focused on simply getting on with life rather than perhaps enjoying those adventures and social situations that are part of the human condition.
However – depending on how Omicron develops – we do see more people choosing to use equity release for more discretionary spending – be it home improvements, buying new cars or holidays for instance.
There is certainly pent up demand and it is interesting to speak to advisers who suggest that older clients are increasingly focused on enjoying their retirement.
Product and advice evolution not revolution
Product innovation is a constant in the equity release market. The past five years have seen the number of products increase from around 88 to around 812, according to analysts.
We’ve also seen the rise of suites of products that allow capital or interest repayment which helps to manage the challenges posed by compound interest.
This innovation is key as with some products still boasting rates below 3%, this means that they can help a wider range of customer cohorts.
Supporting under 65s with equity release has long been a contentious subject but if these customers have the choice to service the interest and/or repay capital, how does this differ from a RIO or a mainstream mortgage apart from offering increased flexibility in how borrowing can be managed and important additional protections such as guarantee of tenure?
With this in mind, the market feels ripe for more product innovation in this space and I would not be surprised to see that in 2022.
Rebroking equity release plans also hit the headlines in 2021 and by the end of September, we estimate the market transacted around 3,000 cases with customers on average moving borrowing of £134,597 from a rate of 5.1% to 3.6%.
The Bank of England may have raised the base rate from 0.1% to 0.25% recently but they are still very near historic lows so there remains scope for people to manage their borrowing.
The move by the market from a focus on gilt linked or variable ERC’s to fixed ERCs over the last 18-months is only going to spur this on – as are buoyant house prices which mean that people can potentially access more than before.
Good specialist brokers will continue to contact clients about this option to help ensure that the products are evolving with their needs but we do – as an industry – need to consider how we support those whose original adviser has either retired or they have lost touch with.
The importance of advice and later life lending
Following the FCA’s June 2020 report, they promised to revisit this sector so we are likely to see some communication from them about this market as well.
While I do think as an industry, we need to continue to push for good customer outcomes and consider how we can do things better, we have seen much improvement in the last 18 months so I hope this progress is recognised.
Finally, in 2022, I expect to seem more use of the term ‘later life lending’ as people increasingly realise they have a range of options when it comes to borrowing into retirement.
The multi-trade body brochure supported by AMI, ERC, BSA, TISA and UK Finance outlined this in an easy to digest format and this is certainly something that I hope to see more firms actively using.
So in short, the future is bright for this market and we may well be about to take that next step which is fantastic news for providers, advisers, solicitors but most of all those customers to whom this makes such a difference.
