In recent months, the consistently rising housing prices, and housing wealth among existing homeowners, has never been far from the news. Tales of people hosting open days for average suburban properties, queues outside estate agents when new developments entered the market, and an uptick in people buying new-builds off-plan have all become quite common – and for many, this has been stimulated by the government's stamp duty holiday. With this now coming to an end, what could this likely mean for the housing market, and by extension for the equity release sector?
Business As Usual?
For some in the market, a cliff-edge following the stamp duty holiday cut-off is unlikely. In recent analysis for Mortgage Introducer, PRIMIS' Vikki Jeffries suspects that demand within the housing market will likely continue, bolstered in part by new buyers who've seen current market conditions and who've elected to delay their own purchase until after the holiday in the hope the market will level off. Nick Chadbourne, chief executive at LMS, also points to the fact that several factors (such as increased demand for larger, rural homes and demand that continues to outstrip supply) will offset any expected marginal slowdown in purchase activity.
The overall value of the nation's housing stock has risen from £5.67tr to £6.42tr over the last year according to figures from the Equity Release Council, and while overall mortgage debt has risen to unprecedented levels (sitting at over £1.5tr), the rising house prices have meant that there's currently £3 of equity for every £1 of debt, meaning that equity accounts for over three quarters of the value of the average family home. When cross referenced with house prices, this equates to an average of over £201,000 of property wealth potentially being available.
What do rising house prices mean for consumers and their families?
The movements in the property market are worth considering, both in terms of what it means for overall property wealth and consumers' ability to release the funds they need, but also their ability to do the things they desire with the funds once released. For instance, research by FT Adviser has highlighted that over-55s are increasingly using equity release to help themselves move home to the tune of a 116% year-on-year rise - an aspirational trend far removed from the 'last resort' stereotype associated with the sector. The rising prices in the market may also see greater numbers turning towards additional borrowing to finance house moves, as they explore options that would be unattainable without it. It's also worth noting that at current lifetime mortgage interest rates property price rises are balancing the effects of compound interest for most customers.
Additionally, rising property prices will likely affect the families of over-55s homeowners, restricting the ability for their loved ones to enter the housing market. Nationwide's analysis has shown that a property valued at just over £50,000 in 1992 would have been worth £215,000 at the start of lockdown. Since then, annualised property value increases have surpassed 8.5% on occasion, pushing the cost of an average home to £268,000. With the bank of mum and dad currently the nation's sixth-largest property-related lender, if property prices see minimal drop-off following the end of the stamp duty holiday then parents could use their own rising property wealth to continue the rising trend of gifting the lifetime mortgage sector has seen since lockdown.
The end of the stamp duty holiday will no doubt pose questions, but if the analysis is correct and there will be minimal effect on house prices in the mid-term (at least), then housing equity will doubtless continue to provide a number of avenues not only for customers, but also for their families.