Equity release professionals appear to be bursting with positivity amid record-high lending figures and product choice, along with low rates.

Although many concede the sector’s historically negative reputation still influences consumers, when Mortgage Strategy canvassed the industry, the mood was strikingly upbeat about business prospects.

More2life corporate marketing director Stuart Wilson sums up opinion: “We are operating in an exciting new era and are delighted to help a growing number of homeowners to access funds from the value of their home to meet their later-life financial needs.”

Equity Release Council (ERC) chairman David Burrowes says: “The inevitable pandemic slowdown has been followed by a gradual return of confidence, helped by the robust performance of the wider property market.

Equity release is arguably one of the most regulated retail products

“Homeowners in need of extra funds for later life increasingly look to equity release as a positive step, in the right circumstances, to benefit from wealth they have built over many decades.”

That sentiment is reflected by numerous data sources.

Figures from the ERC show 2021 is likely to be a record year for lending. By the end of September, equity release customers had borrowed £3.46bn this year, putting the market on track for well over £4bn of annual activity — a new landmark.

More2Life predicts that, in the next decade, the amount of equity released per year could jump to £6.4bn.

Innovation

Just Group director Stephen Lowe points to innovation as one of the driving forces behind recent market growth.

He says: “The market is rebounding from last year’s lockdowns and returning to growth. Developments such as the wider introduction of medical underwriting — which could help six in 10 lifetime mortgage borrowers to achieve better deals — illustrate the innovation and competition prevalent, which are signs of a healthy market.”

The market is rebounding from last year’s lockdowns and returning to growth

As well as increased innovation, such as more flexible drawdown options, overall product choice has been growing for many years. Figures from data firm Moneyfacts show huge growth in 2021, with the number of lifetime equity release deals available at the start of October standing at a record high of 812, compared to 698 in August and 480 in January. Winding the clock back further, 300 such deals were available in August 2019 and just 88 in August 2016.

As for the wider mortgage market, interest rates have fallen in recent years. Moneyfacts data shows the average rate in August 2016 was 5.76%, dropping to 4.92% in August 2019. It hit 4.13% in August last year and, while rates have bounced up and down a little since then, the average was 4.17% at the start of October 2021.

However, also like the mainstream market, there are warnings rates could rise amid the huge jump in the cost of living, which has led to predictions of an imminent increase in the Bank of England’s base rate.

Advisers and customers shouldn’t sit on the fence if the need for the product is there

Wilson says: “It is hard to predict what action the central bank will take when it next meets to reassess the base rate, but inflationary pressures, rising energy prices and supply chain issues are making a slight rise increasingly likely.

“This has already started to impact the equity release as well as the residential markets.”

Key chief executive Will Hale warns advisers not to waste any time, if equity release is deemed the right product for a customer, amid the threat of rising rates.

Inflationary pressures, rising energy prices and supply chain issues are making a slight rise increasingly likely

He says: “In recent weeks rates have been moving up. Advisers and customers shouldn’t sit on the fence if the need for the product is there. The rates available today point to a strong customer value proposition and the cost of delay over the lifetime of a loan can be significant if rates do rise.”

While equity release costs are historically low, they remain far higher than standard mortgage rates. Their subsequent expense, and the way interest can accumulate over many years, are two of the reasons why some consumers are wary of taking out such a deal for fear of leaving less of a legacy to future generations than they had hoped.

That said, the market is still a long way from the horror stories of the 1990s, which saw costs and misery spiral upwards for many customers.

The industry has evolved and is very much on the front foot

Hale says: “Unfortunately, the market has not fully shaken off its negative reputation and this is frustrating. Equity release is arguably one of the most regulated retail products and can only be taken out with the support of a specially qualified adviser.”

He continues: “Modern equity release products offer low rates and a range of flexible features, which mean the product is relevant to a wide range of customers and is far from the ‘product of last resort’ it has previously been labelled.

“However, it is undoubtedly not right for everyone and all advisers should help customers consider other options, including retirement interest-only products, downsizing and what role their pension pot or other savings could play in meeting their wants or needs.”

Wilson agrees about the market’s reputation. He says: “Unfortunately, there are still lingering doubts about the industry, built on historical cases, lack of understanding and media headlines.

The product is relevant to a wide range of customers and is far from the ‘product of last resort’ it has previously been labelled

“The industry has evolved significantly and is very much on the front foot in ensuring borrowers are fully aware of the details of the loans they wish to take out, and in supporting advisers as they have conversations with their clients.

“The industry continues to engage with the regulator to ensure we can move beyond any historical challenges and focus on providing sustainable individual outcomes for customers.

“The tide is changing, but more education is needed before the average consumer is aware of the multitude of benefits of equity release, from funding home renovations to gifting sums in a tax-efficient way.”

There is an ongoing need to ensure consumers and brokers, across a range of areas, understand the choices open to them

Others in the sector agree that many consumers, and even brokers, need more education about how equity release works.

The ERC says it is devoting time to help improve understanding of the product.

Its chief executive, Jim Boyd, says: “The industry is constantly evolving and there is an ongoing need to ensure consumers and brokers, across a range of areas, understand the choices open to them.

“The council invests significant time and resources in educating consumers and advisers, such as its competency framework, adviser guide and good-practice guidance.”

Understanding

The consensus seems to be that, if more advisers can better understand this market, they may find themselves joining a booming sector, and one where their peers are full of optimism.

Research from More2life in August showed 94% of advisers were confident about the outlook for the equity release market over the next year, while 91% were also confident about the prospects for their company.

The tide is changing, but more education is needed before the average consumer is aware of the multitude of benefits of equity release

A cynic may argue the industry is bound to talk up its potential because that helps it make more money, and the sector is less likely to highlight some of its challenges that have been raised over the years by consumer group Which? and others of its ilk.

However, when it comes to growth the stats speak for themselves, with 2021 likely to be a record year of lending. How much bigger the market can become, and how well it serves customers’ needs, remain to be seen.