ERC: Property wealth accessed down by 34% in Q2 but saw some recovery in June

£698m of property wealth was accessed by older homeowners in Q2 2020, down by 34% (almost £400m) from Q1, but the market saw signs of recovery during June, according to data released by the Equity Release Council (ERC).

In comparison, £1.064bn of property wealth was accessed by new and returning customers in Q1.

The number of new equity release plans agreed between April and June also declined by 34%, from 11,079 in Q1 2020 to 7,341.

Legal & General: Equity release demand will return

This was the lowest seen in any quarter since Q2 2016 (6,671).

The total number of customers (new and returning) served in Q2 2020 was 13,617, down from 21,884 in Q1 2020 (-38%) and 20,866 in Q2 2019 (-35%).

May was the quietest month for new plans agreed, with just 2,229 completions compared to an average of 3,693 per month during Q1 2020, a drop of 40%.

The ERC analysis found that April’s total of 2,533 new plans completed was likely a result of cases arranged earlier in the year, before the lockdown came into effect in late March.

With England’s housing market reopening in mid-May, the number of new plans completed recovered slightly in June to 2,579, but remained 30% down on the average monthly figure from Q1.

Among new customers, lump sum lifetime mortgages made up a 45% share of new plans arranged in Q2 2020, compared to a 43% share in Q1 2020.

Among the 3,328 new lump sum lifetime mortgages taken out (down 31% from the previous quarter), the average loan size dipped below £100,000 for the first time since Q3 2019, to £99,959.

Drawdown lifetime mortgages remained the most popular type of new plan agreed, albeit with a lower share (55%) of new customer activity than the previous quarter (57%).

Among the 4,011 new drawdown plans taken out (down 36% from the previous quarter), the average first instalment (£68,606) was largely unchanged from Q1 (£68,492).

The average amount reserved for future use (£37,500) was 4% lower than in Q1.

For returning customers, Q2 2020 saw 5,608 take extra drawdowns from their agreed reserves, compared to 9,805 in the previous quarter, as people exercised caution before making use of the option to access further funds.

This was a 43% decrease from Q1 to Q2, compared with the 34% decrease in new customers served.

The average drawdown instalment taken was £13,005 in Q2, compared with £11,611 in Q1.

Further advance activity was also considerably quieter, with just 668 existing customers agreeing additional funds – the lowest number since Q1 2017.

The fall in Q2 reflected wider lending trends; Bank of England data for April and May showed gross lending secured on dwellings was down 36% from February and March.

David Burrowes, chairman of the ERC, said: “Equity release market activity continued to mirror wider economic conditions, with the confidence of early 2020 giving way to caution as households assess the impact of coronavirus on everyday life.

“Careful precautions have kept the market open to those who wish to choose the option of equity release and ensured customers have access to property wealth to help meet important financial and social needs.

“That said, the fall in the number of new plans and fewer returning customers accessing extra funds are clear signs of people pausing to see how the wider situation unfolds.

“Property assets have long been one of the nation’s main sources of wealth and are likely to play an increasingly important role to support people when addressing the challenges facing many in later life, including bridging the savings gap for older homeowners who are asset rich but cash poor.

“Releasing equity is not a suitable choice for everyone, and our focus is on ensuring customers’ interests are protected at every stage of the process through structured financial advice, independent legal advice and clear product safeguards.”

Alice Watson, head of marketing, insurance at Canada Life, said: “It will come as no surprise to see that the equity release market has shrunk by over a third from the previous quarter.

“After a strong start to the year, the last three months has seen new customer numbers fall dramatically when the country was largely under lockdown.

“This can be attributed to a number of factors, including customer caution around the impact of coronavirus on everyday life, short-term modifications to lending criteria and the temporary withdrawal of onsite valuations.

“However, as we start to see lockdown lift, I’m optimistic for a return to growth.

“The full impact of coronavirus is still unknown, but the global pandemic has proved that the industry can rise to any challenge.

“Over the last few months alone, the market has demonstrated its resilience by adjusting to new ways of working and embracing technology and I’m confident that the market will continue to pull together to deliver solutions for advisers and their clients.”