2019 saw the equity release market undergo a year of stability after a breakout 2018, with lending remaining largely the same year-on-year at £3.9bn despite market conditions proving challenging for financial services providers in general. Amid ongoing political and economic uncertainty consumers have understandably become more reticent and cautious when it comes to making major financial decisions, and within that wider context the market results have arguably underlined the strength of the later life lending sector.

New customers for 2019 as a whole exceeded 85,000 – representing a year-on-year rise of over 3% - who released over £1bn in Q4 alone, more than the £945m released during the whole of 2009. This has been stimulated by a market which has reacted to a customer base seeking greater flexibility in retirement solutions by offering lower rates and more feature-laden products.

Last year saw the average interest rate drop to below 5% for the first time (sitting at 4.91% in September), as well as 95% year-on-year increase in new plans available to consumers, with a new product surfacing on average once every 48 hours throughout the year. In addition, there were significant year-on-year rises in the number of plans offering downsizing protection (up 103% from 2018), interest payments (up 710%) and one-off repayments (up 77%).

While the market has stabilised in 2019 and has provided a strong foundation on which to continue building in 2020, it’s important that the wider sector doesn’t lose sight of the need to understand and consider the needs of their customers and by extension continues to provide products that are fit for purpose. Whereas equity release was once seen as a product accessed out of necessity, it’s now used in more diverse ways with gifting and more aspirational uses featuring prominently. Key Retirement’s 2019 Market Monitor shows that while 49% used equity release to consolidate debt (and 12% used it to help with regular bills) 64% used it to fund home and/or garden improvements, 32% used it to fund holidays, and 28% used it to gift to family or friends.

The unfulfilled promise of Retirement Interest-Only (RIO) mortgages acts as a cautionary tale of creating products which don’t accurately meet customer needs. Designed as an alternative to lifetime mortgages, RIOs were meant to aid so-called ‘mortgage prisoners’. However the reality was that its strict affordability tests, notably the stress tests on joint plans which seek to prove that one party can afford the mandatory repayments should the other pass away, proved restrictive at point of entry. In addition, its mandatory repayments left retirees with an inflexible product at a time when they most valued the flexibility of retirement and as a result, brokers have been left unsurprised that just 660 plans have been taken out since March 2018.

We’ve understood the need to continue to adapt to market trends, as evidenced by the constant development of our Heritage range since its launch last spring as part of our wider product enhancement strategy. The latest developments sees the range now catering for age-restricted and sheltered accommodation providing the property is worth over £200,000 and has a resale fee of under 3%. The maximum LTV available will be 2/3rds of those for standard properties.

Other changes to the criteria include flat roofs being considered up to 30% (compared to the 25% of 2019 criteria), maximum acreage has increased to 5 acres (versus 3 last year) and leasehold properties are now considered if leases have a minimum of over 100 years remaining (previously minimum lease terms were 120 years). In addition, annexes where a carer or relative are residing are also now considered, subject to them being on the same title as the property with shared council tax and utilities.

The market is at a point where, after a year of consolidation amid challenging conditions, it’s arguably ready to take another major step forward. However, it’s important to remember that headlines like the double-digit year-on-year growth we saw in Q1 of 2019 can only continue if the market as a whole doesn’t lose sight of customer needs and by extension continues to offer products and features which meet them.

It’s something we’re dedicated to doing at Pure Retirement, and we look forward to seeing the developments the rest of the market offer as the year progresses.

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