The changing uses of equity release: a lender’s perspective

Gareth Ware - Senior Comms & Editorial Executive

Published on 11th November 2020

It’s naturally been a year of considerable change within the sector owing to the pandemic, with several procedural adaptations needing to be made and wildly fluctuating market activity levels - as evidenced by the Equity Release Council’s market figures showing a quarter-on-quarter decrease from Q1 to Q2 - and increases from Q2 to Q3 - of well over 30% in each instance.

It’s similarly been a year where customers have had to do a considerable amount of soul searching when it comes to their retirement planning and personal finances. This initially led to a downturn of activity as the effects of the pandemic first hit as many deferred making any major life-changing financial decisions, and many have also pivoted when it comes to the usage of their released funds. The latter point is something that’s been a clear pattern among our loan usage figures for August 2019 to September 2020, with some of key themes emerging.

We’ve pulled together some key data themes surrounding big ticket items such as holidays and new car purchases, funeral planning, new property purchases and financial management to give you an idea of what we’ve seen in terms of customer habits and their common uses for released funds over the last year or so.

Unsurprisingly big ticket items have suffered significant drop-offs, with holidays being the biggest casualty both in the wider world and in terms of the uses of funds by our customers in the last 12 months. From a high of nearly 13% in August of last year, the number of customers accessing funds fell to levels that barely scraped the 4% mark at the same point 12 months later. That said, new car purchases have stayed relatively static, with a low point of 3.9% being reached in November of last year and save for the exceptions of April and July of this year all other months in 2020 have sat above that level. Additionally, nearly 6% of transactions in September of this year listed a new car as the main reason for accessing funds, suggesting a gradual uptick in activity.

Funeral planning and arranging LPA has also seen a significant drop off over the past 12 months, possibly due to fewer people being able to see the appropriate parties to arrange due processes and the signing of forms - having sat at between 11-14% between August 2019 and January 2020 it’s fallen to levels consistently around 8-9%, with a low of 6.26% in July. New property purchases, meanwhile, have shown the opposite trend, with July-September’s 3-month run of figures deep into the 3% range being roughly twice what it had been at pre-COVID levels. This could be attributed to both the stamp duty holiday and people wanting to be nearer family in these trying times.

Interestingly, at the height of lockdown paying off debts was overtaken as the number one reason for taking out equity release by home improvements - it could be argued that as lockdown hit and people started to realise they’d be spending considerably more time in their homes that it focused their mind on completing household jobs. Between February and May, home improvements accounted for over 30% of released funds, peaking at 33.74% in May. It has since fallen off to around the 25-26% mark, while paying off debts has risen to a similar figure in recent months from a low of 17.98% in March, with a 2020 peak of 28.08% occurring in July.

These figures demonstrate the fluid nature of equity release usage at present, and the importance of creating products that meet customer needs, whatever they may be. We’ve worked hard to continue innovating throughout the year to achieve just that, and whatever the wider landscape may throw up our Sales team always remain on hand to help you find the right product for your clients.

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