CEO, Pure Retirement
04 July 2022
4 min read
While some of this will undoubtedly be attributable to rising house prices, it nonetheless points to a shifting customer profile that’s a world away from the ‘solution of last resort’ that equity release has historically been lumbered with.
It comes at a time when the centre for Economics and Business Research (Cebr) shows that at present around £1 in every £90 being spent by retired people in the UK is being financed by equity release, with estimates suggesting that total borrowing will exceed £5bn by 2025 – though it has to be said that as total lending for 2021 reached a record £4.8bn, this seems a conservative prediction.
As the market grows, it’s undoubtedly interesting to note the changing consumer profiles within the lifetime mortgage sector – but it also acts as a cautionary tale that the industry needs to ensure that it recognises these changes and effectively adapts to continue meeting them.
Some of these movements will undoubtedly have at least been partially influenced by the well-documented increases in house prices, and it opens up the debate surrounding downsizing as an alternative source of retirement funding. A fascinating piece of analytical research from Responsible Life looked at over 200 equity release transactions taken out between 2013 and 2015 and found that on average the net worth of borrowers was 1.85% higher than if they’d downsized – this was equivalent to £1,694 a year, rising to £2,420 a year among those who saw increases in the value of their home.
It’s safe to assume, given wider movements, that this is likely to be even truer than ever now. Not only have average lifetime mortgage rates dropped considerably from a 6% average in 2015 to 4.16% at the start of this year, but we’ve seen a disjointed supply and demand relationship in the property landscape between prospective buyers and available housing stock. This has meant that house price growth now exceeds the interest roll up for many equity release applicants, and also that those seeking to purchase another property face a lack of housing stock, and inflated prices and bidding wars – all of which contribute to making downsizing a less attractive option.
What this ultimately means is that perhaps more than ever, we’re dealing with an incredibly diverse customer base with varying needs – and as the market continues to grow (which it’s currently showing every sign of doing) then this is only going to increase. As a result, it’s paramount that the wider sector not only delivers a diverse suite of products to meet a variety of circumstances – and can adapt over the mortgage term – but also ensures that it’s continuing to understand and appreciate the changing nature of its customer base.
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