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Falling property prices hit equity release lending

While the number of plans fell 7% the effect of falling property prices has impacted heavily on the overall lending figures.

The monitor reports that the combination of a 7% drop in plan numbers and a 16% drop in property prices resulted in a fall in lending for the sector of almost 24%.

This is the largest fall Key has recorded since it began monitoring the sector in 1998. Total Lending has fallen from £240million to £183million. As a direct result the average loan amount has fallen by 15.33% to £44,948 (2008 Q1 – £53,084).

The average property price in all regions of the UK has fallen dramatically with falls a high as 26% in East Anglia, 24% in Scotland and 20% in the East Midlands. London fared best with a 6% fall. With such dramatic property value changes the equity release market could not be unaffected.

Dean Mirfin, KRS Group Director, said: “Whilst the total number of plans fell by just over 7% the dramatic fall in lending figures is impacted most by the fall in property values. The average property value for someone taking out equity release has fallen by over £36,000.

"The results for the first quarter of 2009 show that despite falling property prices the demand to release equity is still strongly evident.

"Those considering equity release may be waiting for property prices to improve, but this could well prove to be a false economy. We only get one chance at retirement and it is important that those considering equity release do not delay, time is something we can’t buy back."

London continues to show the largest average amount released at £91,845, followed by Northern Ireland at £53,850. However, Northern Ireland has seen a considerable stall in plan numbers with a 66% fall in the number of plans being arranged.

Despite a reduction in the number of plans taken out during the quarter and in the values, some regions showed positive growth. East Anglia and the West Midlands showed an increase in both plan numbers and levels of borrowing.

The Market Monitor continued to show that the most popular use of the equity released from consumers’ homes was for home or garden improvements (58%). One in three (33%) used the money to go on holiday and 19% used it to help out family or friends, as parents are helping their children to get onto the property ladder or helping them meet their commitments in the current economic climate.

Debt repayment is consistently one of the prime motivators for releasing equity, with 23% repaying an outstanding mortgage and a further 33% repaying other forms of debt. The impact of debt repayment on pensioner incomes can be considerable and for many clearing those outstanding commitments makes a dramatic effect on their retirement finances.

Mirfin said: "Increasingly those entering retirement are faced with a financial position which is far from what they anticipated. Mortgage, credit card, or other commitments are making life increasingly harder for those faced with a debt in their retirement. Equity release for many is proving to offer a solution to those who want to release the burden of debt and to improve their retirement income.

"Equity release can provide retirees with financial freedom in retirement but it’s not always the right option for everyone. We firmly believe no-one should commit to any form of equity release without seeking independent specialist advice."

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