Equity release lending down 41% due to falling house prices

08 July 2009 / by Rachael Stiles

Total equity release lending fell 41 per cent in the second quarter of 2009 compared to the same time last year, according to the latest statistics from Key Retirement Solutions (KRS).

The amount of value unlocked from retirees' homes through equity release in Q2 this year fell, totalling £189million compared to £319million in Q2 2008, due to a fall in the number of people taking out equity release plans, coupled with a fall in the average amount of equity unlocked from each home as house prices have continued to fall.

Contributing to the 41 per cent decline in total equity release lending in the second quarter, the number of new plans taken out fell by 24 per cent, to 5,143, compared to 6,747 in Q2 2008.

Homeowners unlocked an average £40,766 of value from their homes in the second quarter of 2009, a drop of 23 per cent, from £52,820 the previous year.

This fall in the average amount of equity released is, in part, because of the comparative fall in house prices over the last two years, Key Retirement Solutions believes.

But, while the quarterly results show a decline on last year's figures, they revealed a positive growth compared to the first quarter of 2009, with the number of plans taken out up nine per cent from 4,703, and a three per cent increase in total lending.

Drawdown equity release remains the most popular form of unlocking value from the home, whereby borrowers agree to the amount of equity they wish to release and take it as instalments whenever they wish, rather than as a lump sum.

At 64 per cent, drawdown proved more popular this year than last, when 59 per cent of borrowers opted for this type of equity release.

Single advance lifetime mortgages accounted for 32 per cent of business at Key Retirement Solutions, whereby the customer takes the cash as a lump sum. Home reversion schemes, which involve selling the home to a reversion company or individual but continuing to live there by renting it back, accounted for four per cent of KRS equity release loans.

When it comes to the reasons for taking out an equity release plan, Key Retirement Solutions' figures show that offering financial assistance to family members has become a more popular motivation, accounting for 36 per cent of business compared to 25 per cent in 2007, as retired people look to help their children through the recession.

But making home improvements remains the most common incentive for equity release, with 56 per cent of customers unlocking some of the value in their homes for this reason.

Commenting on the latest Market Monitor, Dean Mirfin, group director at Key Retirement Solutions equity release, said that the fall in equity release lending is a "natural result" of property values being at an average £205,675 this year, compared to £224,487 in quarter two last year.

"The positive is the fact that in part the decline in lending values reflects the sustained uptake of drawdown plans where customers can release a lower amount initially and then return for further funds when needed, this can heavily reduce the cost of borrowing for customers," he said.

Mr Mirfin added: "The results for quarter 2 over quarter 1 are encouraging and we believe that the demand for equity release can continue, and following this turbulent period will return to, and then exceed, previous business levels."

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