For the first time since the coronavirus restrictions first came into effect in the UK, new figures from Key have laid bare the impact of the pandemic on the equity release market. The group’s latest Equity Release Market Monitor reveal a stark contrast between the first three months of the year – and the three months that followed.

In total, older homeowners across the UK released almost £1.5 billion worth property wealth in the first half of the year. But, like all parts of the UK economy, the market experienced a major slowdown as political and economic uncertainty grew.

Yet, the equity release advisors insist the market is capable of returning to growth by the end of 2020 and on into the new year.

Putting the Q2 2020 figures in context

The number of UK homeowners taking out equity release plans during the first half of the year was down 10% on the same period in 2019, according to Key’s Equity Release Market Monitor.

The value of those new plans totalled £1.47 billion, which is a 12.6% drop on the £1.68 billion recorded in H1 2019. But it’s worth noting that figures were relatively buoyant for Q1 2020.

As coronavirus restrictions kept people indoors and shuttered businesses from March onwards, the number of new plans tumbled significantly. The market dropped by more than a quarter in the second quarter (27%).

The amount of new equity released, meanwhile, nosedived by 45% compared with the first three months. But hopes are high for a bounce back as early as Q3.

Key CEO Will Hale commented: “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. While the sector has been remarkably resilient, there are a number of knock-on effects from the current pandemic.”

Regional success stories despite the drop

In spite of the overall drop highlighted in Key’s Equity Release Market Monitor, there were one or two success stories from regional markets. In the North of England, the restrictions failed to halt a 7% increase in the number of new plans. The South West also reported growth in new equity release plans – albeit at a much smaller rate of 1.4% against figures for H1 2019.

The South West also featured among the regions to post the smallest falls in the total value of equity released – down around 3% to £172 million. Both Yorkshire & Humberside and the North also emerged with single-digit drops at 6.9% and 9.9% respectively.

But, in terms of largest-selling region, the South East remained top of the pile – making up one in four sales during H1 2020.

How are customers using equity release?

Key’s market analysis provides detailed insight into how equity release is being used too. Yet again, this reveals a shift in behaviour between the first and second quarters of the year. For many customers, the impact of coronavirus seems to have encouraged more homeowners to release equity with the aim of shoring up their finances.

The analysis shows a 6% increase in the number of people using equity release to repay their mortgage in Q2 2020, with a further 1% rise in the number of those repaying other debt. This, as you might expect, came at the expense of discretionary spend – holiday spending falling by 4% in the second quarter, with spending on home/garden renovations down by 3%.

Hale explains how this has also influenced the advice that Key has offered in these uncertain times: “With people unable to go on holiday or spend money on age proofing their home, the responsible approach has been to advise them to wait until the market returns to more normal trading conditions and they could make sustainable long-term decisions.”   

The outlook for the equity release market

For all the gloom that Q2 figures might suggest, Hale is confident that an upturn is on the cards – and perhaps quicker than thought. Demand, it seems, has not fallen away even if the number of plans sold did. As such, there’s now hope that data for Q3 might show signs of a recovery as trading conditions return to normal.

“We are confident that these macro drivers will ensure that we will return to growth by year end and into 2021,” Hale explains.

“Many older consumers are likely to be extremely cautious for the foreseeable future – though we may see an increase in gifting to family members looking to get on, or move up, the housing ladder given the stamp duty holiday.”