The use of equity for debt consolidation and to cover mortgage payments has skyrocketed since the coronavirus pandemic hit the UK in March.
According to Key’s latest figures, nearly half of all new equity production in July to September was for these reasons – up from 37 percent in the first quarter and 44 percent in the second quarter.
This increase has taken place in a market that is returning to near normal, with a total of £ 884 million borrowed through 10,671 sales over the three-month period, up from £ 521 million with 8,374 completions from April to June.
This total value of the loan was virtually unchanged from the £ 887 million released in the third quarter last year, although sales were down nine percent – illustrating that borrowers are taking up larger amounts.
The figures come just a day after the CEO of the Association of Mortgage Mediators Robert Sinclair told Specialized credit solutions The FCA was particularly concerned about the advice on debt consolidation in the equity release and secondary costs sectors.
Earlier this year the FCA emphasized its interest in assessing advisory quality and fees within the stock release market and is concerned about the way vulnerable clients are treated.
Making finances robust
Key noted that the third-quarter numbers build on the trend seen in 2020, with customers taking advantage of equity disclosure to make their finances as robust as possible by reducing their spending.
In addition to the £ 415 million for debt and mortgage settlements, 25 percent of a total of £ 221 million was used to support family and friends through donations – up from 21 percent in the previous two quarters.
About 11 percent or £ 97 million went to home improvements – mainly for age-resistant homes so people can stay at home – while only three percent or £ 26 million was spent on vacations.
The share of sales for applications in these last two categories has fallen six percent and five percent since March.
Will Hale, CEO of Key, said: “In the third quarter, we saw a return to more normal market conditions, driven by many customers looking to make their finances more robust by reducing their spending or supplementing their income.
“While the payment holidays offered by major private lenders have certainly benefited many, older borrowers who are either fearful of layoff and a difficult climb to work or early retirement have tried to use the financial pressure they feel.
Safe in the knowledge that not only are interest rates at historic lows, but through modern flexible equity release plans, they can pay interest or make ad hoc capital repayments if they wish to mitigate the impact of rising interest rates. soften. “
Financing of essential expenses
He added that the Stamp Duty Holiday had also led to more donations to help younger family members up the property ladder, with the recipient receiving an average of £ 57,549.
“The market is maturing and is now very focused on essential rather than discretionary spending,” he said.
Hale also noted that only 15 percent of those who inquire about the equity disclosure end up taking a plan.
And he cautioned, “There are going to be tough times, but the market remains strong and will continue to evolve to ensure that products and advisory services are well positioned to help clients use their housing assets to navigate later life.”
Owain Thomas is Editor-in-Chief and Contributing Editor of Mortgage Solutions and Editor of Specialist Lending Solutions. He also has experience in protection, pensions, benefits and HR. Owain has won two Headline Money Awards and the Protection Review’s Journalist of the Year award.