Some £8.2 million of housing wealth was withdrawn in the UK every working day in the second quarter of 2016 as equity release lending passed £0.5 billion for the first quarter on record.

Overall there was £514.4 million of lending in quarter two, up 34% year on year and 58% higher than in the second quarter of 2014, according to the latest figures from the Equity Release Council.

The council report points out that the three busiest quarters for equity release lending have all come within the last 12 months and the annual rise in the number of new plans agreed is the fastest seen in 13 years.
 
Common uses for equity release include paying off existing mortgages and loans, providing extra retirement income, funding home improvements or care related adaptations, paying for travel or other one off expenses, and gifting money to family members as a ‘living inheritance’.

The council also says that over 55s increased appetite to use housing wealthy has been supported by market developments which include new providers and increasing choice of products and features emerging. In addition, the market received support from the regulator in April when they amended the legislation to allow optional interest repayments to be exempt from mortgage affordability rules.
 
Year on year, the council’s figures show the biggest percentage growth in the value of lending in the second quarter of the year was for lump sum lifetime mortgages, typically involving a larger release of housing wealth in a single payment, up 37% or £56.8 million  compared to the second quarter of 2015.

However, lending via drawdown lifetime mortgages, allowing consumers to make multiple withdrawals of equity as and when needed, continued to account for the larger share of the market, growing 31% or £72.4 million to £304 million compared to the second quarter of 2015.

Home reversion plans also experienced a rise in the second quarter of 2016 with the total value of activity more than doubling year on year from £623,647 in the second quarter of 2015 to £1.5 million.

Looking at new customers’ product choices, some 67% opted for drawdown products in the second quarter, up from 65% a year earlier, while the share of lump sum products dipped slightly from 35% to 33%. With market activity having grown significantly during that time, the number of new drawdown plans agreed was up 27% year on year compared with 16% for lump sum plans.

Overall, it meant the total volume of new plans agreed across the whole market was up 23% year on year, the highest annual growth rate in nearly 13 years since the third quarter of 2003. The 6,671 new plans agreed was the largest quarterly total since the fourth quarter of 2008.
 
‘These figures are the latest sign that UK home owners increasingly see housing wealth as a fundamental part of their retirement funding plans. The long term rise of house prices has allowed many older homeowners to build up considerable reserves of housing equity, which have the potential to solve many of the financial challenges facing the UK’s ageing population,’ said Nigel Waterson, chairman of the Equity Release Council.

‘Growing demand from consumers since the recession has been met by a concerted effort from the sector to grow the range of available products and the reach of specialist advice. Looking ahead, this work will continue with an increasing focus on building relationships within the sector and with related markets such as residential mortgages and later life planning, so consumers can be referred for advice on equity release when it can help their circumstances,’ he pointed out.

‘There is also an important role for government and regulators when it comes to financial education. As well as helping savers to understand the choices offered by the ‘pension freedoms’, it is just as important to help homeowners understand the options they have to put themselves on a stronger financial footing in later life,’ he added.

According to Steve Wilkie, managing director of Responsible Equity Release, drawdown continues to provide a lifeline for those seeking to top up day to day finances, particularly in the current low interest rate environment.
 
‘The flexibility of drawing money as and when required, without being charged interest until it’s drawn, makes it an appealing option for those looking for an additional income stream. And drawdown is only likely to grow in popularity in this new world of greater pension freedom,’ he said.
 
‘With more flexibility in how we invest our pensions, many are choosing to keep their pensions invested rather than buying an annuity. The downside is that they are more exposed to fluctuating stock markets. That’s fine when markets are going up, but when shares are tumbling, people are faced with dipping into their pensions at a time when they should be leaving well alone. Drawdown provides an income tap that can be turned on in these uncertain periods, riding out the bad times until markets recover,’ he explained.

‘Customers taking out lump sums are tending to have larger shopping lists as equity release becomes far more of a family decision. Paying off mortgages still accounts for more than a quarter of the larger lump sum releases we handle. But 45% of those taking lump sums have at least three beneficiaries of the cash being released, and this is pushing customers, who choose the lump sum route, to release larger amounts from their properties,’ he added.

Alice Watson, product and communications manager at Retirement Advantage Equity Release, believes that equity release is now firmly establishing itself in the retirement finance mainstream. She pointed out that over the past three months there have been new entrants to the market, fresh partnerships and a welcome change to the Financial Conduct Authority’s affordability assessments.

‘These developments have contributed to equity release’s already surging popularity. This huge increase in lending has come despite unprecedented political and economic uncertainty ahead of the European Union referendum,’ she pointed out.

‘That speaks volumes about the resilience of the sector. It’s too early to tell what impact the Brexit vote will have on equity release but, if mortgage borrowing conditions tighten as the result of a post-referendum economic slowdown, it’s appeal could increase even further,’ she added.

She also pointed out that accompanying this uplift in lending is increasing diversification of the where and why of equity release. ‘More and more of our customers are releasing wealth from property to make home improvements, gift to family members and pay for holidays,’ she said.

But, she added that while the unprecedented growth is promising, less than 1% of the market’s potential is being fulfilled. ‘With retirees now taking a holistic approach to financial planning, and property values outside of London rapidly catching up with the capital, this potential will be increasingly realised over the coming years,’ she concluded.