Recent data from Pure Retirement for the first quarter of 2024 reveals a shift in how people are choosing to use equity release. It appears that a significant portion of new customers are now tapping into their home equity not just for necessities, but for more aspirational purposes. Specifically, 20% of new equity release customers are using their borrowed money to fund holidays (11%) and purchase new cars (9%). This represents the highest recorded levels of such spending, both on a year-on-year and quarterly basis.
Main Reasons
While luxury spending is on the rise, it’s still not the top reason for equity release. Home improvements lead the pack, with 25% of customers borrowing to spruce up their homes. However, paying off debts and mortgages, which has traditionally been a common reason for equity release, has dipped to its lowest levels at 21%, indicating perhaps a shift in consumer financial stability or priorities.
Stability in Consumer Choices
Despite the increase in luxury spending, the overall reasons for equity release have remained stable over the last year. The top five reasons have not changed, with ‘gifting’ holding steady in fourth place. This suggests that while individual preferences may vary slightly from quarter to quarter, the broader patterns in how equity is being used are consistent.
Differences Between Lump Sum and Drawdown Customers
There’s a notable difference in borrowing patterns between customers opting for lump sum payments versus those choosing drawdowns. Those who take lump sums are more likely to use the money to clear debts, with 26% doing so — a figure that represents the lowest it has been both annually and quarterly. Home improvements and gifting follow closely behind in popularity.
On the other hand, drawdown customers, who receive their equity in periodic payments, seem to favor more aspirational and lifestyle-oriented uses. Only 16% of drawdown customers used the funds to repay debts, significantly lower than lump sum borrowers. Holidays and lifestyle improvements are more common among this group, underlining a trend towards using housing wealth to enhance lifestyle rather than merely manage finances.
Insights from Pure Retirement’s CEO
Paul Carter, CEO of Pure Retirement, commented on the findings, highlighting the diverse needs that lifetime mortgages fulfill. He emphasised the importance of understanding customer trends to tailor product offerings effectively. Carter also pointed out the vital role of having both lump sum and drawdown options available, catering to different customer needs and preferences.