Equity Release In 2021 & What 2022 Looks Like

In this episode of the Mortgages Money and More podcast – the last podcast of 2021 – we’ll talk about Equity Release and how things are developing into the New Year.

What happened in the world of equity release in 2021?

The figures aren’t out yet for the full year. But as we know, it was on for a big improvement in 2021 compared with 2020. In quarter three of 2021 lending reached over £1 billion, an increase of nearly 20% on the same quarter last year.

So we already knew a few weeks ago that the market was already well up on the year before, it was really rolling and I’m sure that will keep improving into 2022. We’ll come on to the reasons why.

Interestingly enough, the volumes also went up in terms of how much people were borrowing. The number of plans was actually slightly down. So fewer people were borrowing, but the amount they borrowed was higher.

One of the reports found that nearly three quarters of the people taking the money were using it for one of two reasons: gifting and debt management.

Equity release for debt management

How you define debt management is important here – it seems likely that people are using equity release to repay their interest-only mortgages, as this is still massive in the market.

This can often be a last minute thing where the mortgage is ending, the bank won’t extend the term and people rush around trying to get the money together.

If they’ve retired, they haven’t got the income to support any further borrowing. So equity release is the Knight in Shining Armour. Amazingly, even mortgage advisors, who give advice on what not to do, quite commonly end up using equity release to repay their interest only mortgages themselves.

Equity release for gifting

The other side of the coin is gifting, where 42% of the money taken was given away to family and friends. I can see only that trend increasing too.

On the podcast next week we’ll be talking about First Time Buyer mortgages and getting on the property ladder. And I’ve no doubt that we’ll be talking about house prices increases and the challenges for people buying a home.

With house prices rising by an average of 10.8% and still growing at a decent rate, it is very much a seller’s market. That means people are relying more on the bank of Mum and Dad and the grandparents to put a deposit down on a property.

In the last year or so when people were on furlough, I had clients saying to me they’ve saved more money than ever before because they weren’t having to travel to work. That helped them save up a deposit and buy a home with no stamp duty.

But if we wind the clock forward to 2022, then let’s think about first time buyers. They are back at work, inflation is going up, the cost of everything is going through the roof. All of a sudden they’re not saving as much money as they were. Prices are still going up because there’s a shortage of property. When you put that together they won’t have a deposit for a home and look to Mum and Dad for support.

Other equity release trends

The average equity release customer is 70 years old, but there are plenty of people taking out equity release plans very much earlier. You can access these products from age 55 – and you’d be surprised how many people approach me at age 53, 54, counting down until they’re old enough to do it.

It seems likely that this average age of 70 will reduce because people are ready to release their equity at a younger age. And as pension ages go up, we’ll find naturally society will be more open to releasing equity from their homes.

We will move away from people worrying about leaving an inheritance to their family. More people will be thinking that this is their only option. I think people would be far more open to it than ever before.

Another thing to consider is that equity release is based on the age of the youngest applicant. So even though I might be 60, if my wife is 53, we still can’t do it until she’s 55.

Equity release in 2022

Equity release has definitely been a growing market in 2021. And we’re seeing that growing into 2022 as well, especially with growing inflation and rising fuel prices. The cost of gas is up 28% year on year.

A client I met recently had no debt or outgoings per se, but couldn’t afford to put the heating on. He was wearing 15 layers and freezing cold – yet he had all this bricks and mortar wealth, and no family – so why be in that situation?

It’s primarily because people don’t quite understand how equity release works. And for some reason, a lot of people don’t seek out advice. A friend of mine is trying to persuade his friend who’s got no children and a nice house to explore this as an option. They’re struggling. Releasing some money could really improve their situation.

Initially a lot of people worry that they will lose their house, but once they understand it, they’re comfortable. But it’s just that initial stage of speaking to somebody that can be the barrier.

Increasingly it’s the person’s children pushing them to investigate it and make life easier. They say “Don’t worry about us. We’re all right. Go and sort yourself out.”

The importance of trust

So increasingly we have people enquiring about equity release for their parents – and that’s great. The more families are involved, the better. It’s important that everybody knows what’s going on and they feel involved in the process.

Trust is crucial – it takes time to build trust with clients. We talked on last week’s podcast about face to face advice and what 2022 looks like from that point of view. A normal residential mortgage can be very transactional and people are happy to take advice on Zoom or Teams.

Whereas with equity release and financial advice people really want that face to face advice. It’s not the same looking at a computer screen, I like them to see me and really gain confidence in what I’m saying. And now when I offer to go and see people, nobody says that they would prefer an online chat.

Switching equity release plans

One of the things we talked about in our last podcast was the remortgaging situation where people who already have equity release go on to change plan. Interestingly enough, by the end of the third quarter of 2021, around 3,000 customers had refinanced or gone to another provider for their equity release.

The average borrowing they were moving was £135,000 and the average rate had gone from 5.1% to 3.6%.

That backs up what we were saying about why you shouldn’t just sit on the plan you took out a few years ago – it could be in your interest to speak to somebody about other products and cheaper rates. A 5.1% rate against 3.6% is a lot of money over a period of 15 or 20 years.

Looking forward to 2022

We’ll be doing an update every month about the equity release marketplace, sharing hints and tips and looking at new developments. It’s amazing how much the products have changed in the last year – and there are new regulatory changes in 2022 that we will be talking about. So we are going to keep pressing that equity release button at least once a month.

There’s a figure suggesting 80% of advisers thought the market would grow. I personally don’t understand what the other 20% are thinking. I just look at the way the economy is going, house prices and inflation… and think that equity release can only go up, especially when you look at what people are using it for.

There will certainly be a lot to talk about next year. But in the meantime thank you to all the listeners, and we hope everybody has a fantastic New Year’s Eve and wish you all the best for 2022.