Kategoria nowości: EXTERNAL NEWS
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- A total of £3.92 billion of housing equity was withdrawn by older homeowners in 2019, in line with last year’s total of £3.94bn, as the market consolidated recent growth
- Market has grown almost four-fold in the last decade, with the annual value unlocked rising from £945.97 million (2009) to £3.92 billion (2019)
- Total number of customers served remained high, with 85,497 older homeowners using their property wealth in 2019
Customers took advantage of record low rates and increasing product flexibilities to access £3.92 billion of property wealth in 2019 despite a cautious economic climate, according to year-end market figures from the Equity Release Council, the sector trade body.
The market has witnessed steady growth in the space of a decade, with the amount accessed by older homeowners per year growing from £945.97 million (2009) to £3.92 billion by 2019, representing an almost four-fold increase over the course of the decade. However, last year saw the market consolidate its growth, with lending volumes remaining largely unchanged since 2018 when £3.94bn was unlocked.
The final quarter of 2019 was the busiest period of the year, with more than £1 billion unlocked in Q4 alone. Moreover, it was also one of the busiest quarters on record, second only to Q4 2018 when lending volumes were just 0.1% higher.
Consistently strong consumer demand
Consumer demand continued to grow as older homeowners recognised the crucial role that property wealth can play in supporting their retirement alongside pensions, savings and other assets. 2019 saw the total number of customers served reach a record high of 85,497, of which 44,870 took out new plans (compared to 46, 297 in 2018) following a detailed process of regulated financial and independent legal advice.
Increased product features and flexibilities, such as the ability to make voluntary or partial repayments with no early repayment charge, has helped fuel this long-term growth in product uptake. Additionally, the Council’s Autumn 2019 Market Report showed that the average interest rate dropped to a record low of 4.91% in September 2019, partly the result of increased competition across the market.
The number of returning drawdown customers also increased by 3,676 over the course of the year, up by 11%, while the number of further advances/releases increased by 557 (15% increase), suggesting borrowers are unlocking conservative amounts and only returning should they need to access further sums.
Average withdrawals remain stable year-on-year
The most popular product amongst older homeowners continues to be drawdown mortgages, with nearly two in three (64%) new customers opting for a drawdown product versus a lump sum product.
Furthermore, while the customer base has grown to new levels, the average amounts withdrawn by homeowners have remained steady as customers are advised to unlock values appropriate for their foreseeable financial needs.
During 2019, average withdrawals from new drawdown lifetime mortgages remained broadly consistent with 2018, with the average customer unlocking £63,963 – double the annual income of a retired couple. The average new lump sum customer unlocked £97,282, triple (3.1) the annual income of a retired couple, and a modest increase of 2.4% from 2018’s average withdrawal.
Average new plan withdrawals
The average new plan for lump sum lifetime mortgages was £97,282, up 2.4% on 2018. The average drawdown lifetime mortgage new plan was £63,693, down 0.5% on 2018.
Standards evolve alongside market consolidation
Alongside this market consolidation, the Council recently evolved its standards to introduce an approach based on principles and consumer outcomes, which reflects the latest thinking in financial services regulation and complements the existing rules, safeguards and protections.
These updated standards, which represent the largest evolution since the organisation was established in 2012, build on the work which began in 1991 when clear consumer-focused equity release product standards were first introduced. This sets the benchmark for best practice by providing a higher level of consumer protection than any other form of property based loan.
David Burrowes, Chairman of the Equity Release Council said: “After a period of steady growth, the market has reached a point of consolidation in 2019 with lending volumes in line with 2018. The sector enters 2020 in a strong position with updated standards and a greater number of diverse members signed up than ever before. Looking ahead, we’ll continue to work with stakeholders to ensure consumers are able to access the best advice while ensuring joined up financial planning so that equity release remains a key consideration in mainstream retirement planning.
“Previously viewed as a niche product to support people’s retirement plans, the untapped potential of equity release is now being recognised. This comes as a growing number of customers are recognising the important role property wealth can play in meeting their retirement needs. This has been driven by competition, falling interest rates, increasing numbers of flexible and innovative product options and supported by rigorous standards in the market.”
Source:
2019 was a year of consolidation as equity release lending remains at £3.9 billion
Investment management company HPR Capital Management has issued a closed-ended special AIF for semi-professional and professional investors, the first fund of its kind in Germany to invest in equity release properties.
The fund, Portfolio Grund & Boden Invest 2019, will invest around €50m across 150 or so residential properties with a market value of more than €80m over a fund lifespan of 15 years. The minimum ticket size is €200,000 and the fund is aiming for an annual yield of around 4% based on a conservative value growth estimate of 2% and operating costs of around 0.7% p.a. An upside scenario assumes value growth of up to 6% per year and produces a yield of up to 12.5%. The initial profit distribution is planned for four years after issue and the fund obtained its BaFin permit at year-end 2019.
The fund will invest in undervalued existing residential stock in sustainable top locations across Germany. The purchase price is estimated using the market value minus the hypothetical rent (value of the life interest) for a defined period. For example, in the case of a 70 year old owner, the purchase price minus the value of the life interest would be around 60% of the market valuation. As such, the seller remains the beneficial owner of the property until his or her death.
‘Purchase prices for residential properties in Germany have risen by almost 50% over the last 10 years, and condominium apartments have almost doubled in price since 2010,’ Michael Rau, managing director of HPR, told REFIRE. ‘We buy off-market real estate from people who, initially, might not want to sell. We have around €30m of potential acquisitions in the pipeline. We’re mainly looking at the Big 7. The reasons why people sell vary; around 10% need the money but the remaining 90% want to keep their standard of living. Their children are already in their 50s, so they don’t need the money.’
HPR Capital Management will call on a network of established equity release providers, including an initial co-operation with the company HausplusRente GmbH.
‘This trend will continue, which means that residential properties remain an attractive investment,’ said Rau. ‘However, skyrocketing prices are making it difficult to find suitable products offering attractive yields. The seller can use the capital tied up in the property and is also able to remain in his own home. Our investors can purchase an attractive property as part of an off-market transaction at below market value.’
And as more and more pensioners struggle across Europe, the demand for equity release is expected to increase, according to Steve Kyle, secretary general of the European Pensions and Property Asset Release Group (EPPARG), a Brussels-based organisation representing the interests of European home equity release service providers at the European Union level.
‘We have observed over a number of years that the number of social demands on the elderly is increasing across Europe,’ he said. ‘Even in Germany, the level of home ownership is becoming quite high and it’s a very large market. Equity release is about, aspirationally, having a better life. There are several trillions of euros in property assets held in Europe by people aged 55 or above. That puts the penetration rate at less than 1%. We’re just at the beginning of something very exciting.’
EPPARG aims to encourage the safe development of equity release as a solution to the pension gap and to work towards a recognised quality label or kitemark across Europe. Countries with EPPARG representatives or associates make up over 60% of all the countries in Europe with a home equity release market. EPPARG is in the process of introducing pan-European principles and standards, according to Kyle.
However, would-be customers need professional help to ensure they understand what equity release entails, Kyle warned. ‘Typically, customers are looking at compound interest on the loans, which can range from 2.5% to 7% per annum. However, some newer products allow customers to pay some of the interest off each year. As the market grows, it will become more innovative.
Deutsche Leibrenten Grundbesitz expands its presence nationwide
Given Germany’s ever-increasing elderly population, it’s easy to see why property and pensions are coming together. Last month, German property pension scheme group, Deutsche Leibrenten Grundbesitz, expanded its presence nationwide following a strong 2019. The Frankfurt-based group offers homeowners throughout Germany aged 70 or above a variety of property pension arrangements, including monthly pension payments, a one-off payment, and a combination of both. It now plans to open additional offices in major German cities. During 2019, it achieved record amounts of new business transactions and procured volumes with 210 units and €75m, respectively, corresponding to growth in excess of 100% y-o-y. Deutsche Leibrenten also issued a €50m convertible bond in November 2019.
‘Deutsche Leibrenten has been active in equity property release for the last four years – it’s our entire business,’ Friedrich Thiele, CEO of Deutsche Leibrenten, told REFIRE. ‘We are offering a nationwide product. This year, we want to do around €100m of new business. The percentage of people owning their own home in Germany – and ageing – is growing all the time, so this segment of the market can only grow going forward.’
Thiele estimates that between 150,000 and 200,000 people in Germany each year could potentially be interested in releasing the equity in their homes in this way. ‘The biggest challenge we face is to make equity release popular and to establish sustainable market standards in the German market. With some five million property owners over the age of 65 in Germany, and a continuously ageing population, the market for responsible property pension schemes is very large,’ Thiele said.
However, it is important for equity release schemes to be sold properly, according to Kyle. ‘We have a lot of support from governments because equity release is putting a housing market asset to work. It’s good for the economy and it’s good socially but we want standards across Europe so that this product is sold well.’
Source: German Real Estate Finance – REFIRE
The interest in Hypotekspension, the leading Swedish equity release loan provider, reached record-breaking levels in 2019. Over 2,000 pensioners who own their home increased their cashflow by taking out such a loan. Total new lending amounted to SEK 1.34 billion, representing 66% more than in 2018.
The most common uses of the money were home improvements and supplementing income for everyday expenses. Many customers gave their children or grandchildren an “advance inheritance” and others spent the money on travel or a new car.
“The increase in demand is mainly due to the fact that more and more people have discovered that this possibility exists. We placed a strong emphasis on marketing during 2019 and we have also made Hypotekspension available to more people. Many elderly people find it difficult to get ordinary mortgages and many people appreciate not having to pay interest and amortization every month”, said Nils Ingvarson, Head of Marketing Communications at Svensk Hypotekspension.
Hypotekspension is the first and leading equity release loan provider in the Swedish market. Customers span a broad spectrum of people aged over 60, with single people in their early 70s living in condominiums representing a high proportion of these.