Equity release rises 14%

Equity release has grown in popularity as the general UK mortgage is squeezed.

A total of £275.7 million of equity was released in the second quarter, 14 per cent higher than the £242.7 million released in the first quarter, finds Safe Home Income Plans (Ship).

Ship is the leading professional body for regulated equity release product providers, and represents 90 per cent of the market.

"This success underlines the robust health of the equity release sector, despite the impact of the credit crunch that is having such a negative effect on the mainstream mortgage market," said Andrea Rozario, director general of Ship.

"It also serves to highlight the distinctly different forces that drive the equity release market relative to the mainstream market, including the fundamental pressures of the UK's ageing population, falling levels of pensions contributions and the very high levels of personal wealth held in housing equity."

Despite the current fall in property prices – with Nationwide and Halifax both reporting average prices have fallen by over six per cent over the last year - the very big increases of the past decade mean by far the biggest asset held by people later in life is equity in their home.

"This latest rise in volumes may have been influenced by people wanting to accelerate their plans to release equity for fear of property prices falling further over time, or it may have been simply the increasing pressure on finances caused by rising prices that are often felt hardest by those in or nearing retirement," said Ms Rozario.

In terms of distribution, the intermediary channel continued to dominate.

However, the percentage of total equity release business carried out relative to the direct channel fell slightly from 74 per cent in the first quarter of 2008 to 71 per cent in the second quarter.

In terms of product type, lump sum mortgages accounted for 53 per cent of second quarter loans, drawdown mortgages for 42 per cent and home reversions for five per cent.

These numbers represent continued growth in the popularity of drawdown equity release arrangements.

The increase in equity release has been driven by innovation in the market, finds MoneyFacts.co.uk.

Some 60 new products have been made available to consumers over the quarter – an increase of 25 per cent.

"The importance of equity release to an ageing UK population struggling with inadequate pensions has been heralded for a long time. Have we finally seen the flood gates open?" said David Knight, analyst at MoneyFacts.

"While we are currently experiencing house price falls and conventional mortgage lenders are pulling their products, the equity release sector has a more long term outlook and is seeing demand increase."

Chris O'Toole