The impact of the novel coronavirus has struck just about every facet of modern life.
Among the consequences has been an adjustment in the amount of equity being taken by over-55s. According to a report by Key Retirement Solutions, equity release has declined in popularity.
Despite this, older homeowners have released a combined £1.42 billion of property wealth over the course of the first half of the year.
A Tale of Two Quarters
According to the report, the market saw a drastic contraction between quarter one and quarter two. The number of customers resorting to equity release shrank by 27%, from 11,495 to 8,374. At the same time, these customers reduced the amount of new equity by a staggering 45%, from £949 million to £521 million. Factor in reserved drawdown and this amounts to a reduction in total value from £1.32 billion to £767 million.
The authors of the report concede that customer caution will likely have driven this change, but point to the fact that the industry will have struggled during the lockdown to cater to the demand, and thus some recovery is probable in the third quarter.
The CEO of Key Retirement Solutions, Will Hale, had the following to say: “The unprecedented circumstances the UK and the world finds itself in due to the coronavirus has been reflected in the significant slowdown in the equity release market in the second quarter.
Whilst the sector has been remarkably resilient in adjusting working practices in the face of lockdown to ensure we can continue to help customers, there are a number of knock-on effects from the current pandemic.
How are Customers using their Wealth?
The most common motivator for equity release is renovation to the home and garden, with 59% of customers taking out equity for this reason (for a total of 16% of the equity released).
This is easy to explain: with older people being at greater risk from Covid-19, they’re especially likely to be self-isolating. What better way to spend the time than in the garden?
Mortgage repayment and debt repayment come in at 19% and 29% of customers respectively.
Customers became more cautious in Q2 during the pandemic as more used their equity release for debt and mortgage rather than holidays and garden renovations.
Gifting came in at 24% of customers (and 21% of total equity), which paints a picture of an older demographic who are supporting furloughed family members.
While 27% of customers are taking out equity for holidays, this represents just 6% of the total amount of equity.
Whether these should be immediate priorities is a question for individuals to decide.
As Hale adds: “At Key, we have certainly been having these types of conversations with customers and really focused on helping people decide whether they have an immediate need or perhaps can wait until society returns to a situation when booking a holiday or age-proofing their home is possible.”