Is Equity Release This Year’s Hottest Growth Channel?

Vector illustration of a calculator - equity release

Should I have specialists enter the equity release market?

If someone told you there was an untapped sector of the mortgage market worth several trillion pounds, you would probably think it sounded too good to be true, right? But that’s exactly what the equity release mortgage market represents. Not only that but there is a shortage of people authorised to advise on these products, offering significant potential to brokers who can get their strategy right.

Animated GIF: "I know of what I speak"

So just how big is this market?

According to the Equity Release Council, homeowners in the UK are collectively sitting on a record £4.6 trillion of housing equity. While there are no figures showing how much of this is held by people aged over 55, it is fair to assume this age group probably holds the lion’s share.

Equity release has been growing in popularity in recent years, as lower pension incomes and rising house prices combined to increase people’s appetite to tap into the money locked up in their homes.

At the same time, this sector of the mortgage market has developed significantly, now offering a wider range of products to meet the needs of those wanting to unlock their housing wealth.

Despite the Covid-19 pandemic, which led to lower-than-normal activity in the equity release market for the first half of 2020, nearly 73,000 households took out an equity release product last year, collectively unlocking £3.89 billion. After a slow start to the year, the number of plans taken out soared by 19% in the second half of 2020.

The average loan amount for homeowners opting for lump sum plans was £102,143. People taking out drawdown plans typically unlocked a total of £110,591, made up of an initial £76,453 advance, with £34,138 held in reserve.

Older homeowners are continuing to show a preference for drawdown lifetime mortgages when releasing equity. These account for 57% of new plans.

Equity Release: Animated GIF of a woman saying "Shut up, I'm rich!"

Tell me more about the mortgage landscape

The equity release mortgage market is developing rapidly as the competition among lenders intensifies. The number of lifetime equity release products available in the sector broke through the 500 mark for the first time on record at the end of April this year (up from just 187 in April 2019 and only 66 in April 2016, according to Moneyfacts).

There are currently eight lenders active in the space, namely Aviva, Canada Life, Just, Legal & General Home Finance, LV=, More 2 Life, OneFamily and Pure Retirement.

Meanwhile, average interest rates on the products are hovering at just over 4%, after hitting a record low of 3.86% in March. 

During the past two years, the average equity release rate has fallen by 1.02%.

The increase in product choice, combined with falling costs, has further contributed to the appeal of equity release among older homeowners.

What are the advantages of writing equity release business?

Equity release business offers a number of advantages. Firstly, it is largely independent of trends in the wider mortgage market. Secondly, it is not subject to seasonal factors in the way the house purchase mortgage business is. 

Although the number of equity release plans taken out tends to rise when house prices are increasing, business is impacted less by other factors that affect the property market, such as increasing unemployment, and interest rate and tax changes.

Cases also don’t tend to be on a knife edge as they do in some parts of the market, such as the 95% LTV space. In fact, the average LTV for an equity release mortgage is just under 30%, offering greater assurance that applications will be accepted.

Equity release: animated GIF of a happy elderly gentleman.

What about the challenges?

While the equity release mortgage market offers significant opportunities, it is not without challenges. Brokers require additional authorisations from the Financial Conduct Authority to advise on equity release mortgages. 

This requirement can create a barrier to entry. You need to weigh up the volume of equity release business you are likely to get versus the time and cost of training brokers to be competent in this area.

You may also need to explore new strategies for sourcing leads. The average age of people taking out a new lump sum equity release plan was 68 in 2020, while the average age of those taking a new drawdown was 70.

As a result, previous marketing channels, such as Facebook adverts, will be unlikely to reach your target market.

Finally, decisions on whether to proceed with an equity release mortgage are generally not taken quickly, so it can take time to convert leads into business.

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Final thoughts

If you can get your strategy right, writing equity release business comes with a number of advantages. It enables you to keep clients for longer, continuing to serve their needs even once they have repaid their mortgage. It also means you will be able to cater to the future needs of existing clients, as well as the current needs of their parents, opening up a new channel for referrals. Be smart about how you hold and mine your existing client database.

Get in touch to hear more about how Eligible can help your firm in 2023.

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