Equity release lending falls 5%

1st August 2023

Latest figures from the Equity Release Council for Quarter 2 (Q2) showed that the total equity release lending figure of £664 million was down 5% from the previous quarter, making it the quietest since lending quarter since Q3 2016 when £571 million was lent.

The number of active customers in Q2 rose slightly to 17,028, up 2% from the previous quarter, despite remaining 29% down year-on-year.

New customers increasingly opt for drawdown lifetime mortgages over lump sums compared with 12 months ago.

At £59,294, the average first instalment from a new drawdown plan was 35% lower than a year ago (£90,646 in Q2 2022) and the smallest since Q1 2017

April was the quietest month of Q2, with the number of new plans picking up in May and again in June as monthly activity reached its highest point of the year-to-date.

David Burrowes, Chair of the Equity Release Council said “Higher interest rates have inevitably had a significant impact on the demand for lifetime mortgages like other mortgages, but the gap between residential and lifetime mortgage rates has narrowed over the last year. Equity release remains competitive and has lost none of the extra protections that have been added in recent years.”

“Innovations in equity release can come into their own in a higher rate environment, with drawdowns allowing customers to take what they need in the short-term and make extra withdrawals in future if their circumstances change and interest rates fall. Optional repayments also give people freedom to keep their borrowing under control by limiting the effect of compound interest.”

“The socio-economic factors for releasing equity remain. People are living longer, they are not saving enough for retirement and they want to help themselves and their loved ones to live more comfortable lives. We have seen steady growth in new customer activity in Q2, with June the busiest month of the year so far. While it is too early to call this as the start of the recovery, there is cause for cautious optimism and we remain confident in the strength of the market.”

“Financial and legal advice remain vitally important to help customers understand their options. Equity release products are crucial in helping to meet current needs and avoid a later life lending drought, with higher interest rates and affordability tests making capital repayment or interest-only options harder for older borrowers to access.”

Will Hale, CEO at Key said “Today’s Equity Release Council figures echo our own Market Monitor which suggests that the market is down as we continue to manage the challenges created by a high inflation rate environment and the Mini-budget at the end of last year.”

“That said, there are early signs that the market is starting to gain positive momentum and that customers are becoming more accepting of the new normal. Rates are higher than they have been for several years but the same is true of residential mortgages. Indeed, the difference in average rates for lifetime mortgages and standard two-year or five-year fixed rate mortgages is narrower than ever before.”

“Rates on typical equity release plans, which are fixed for life, are substantially below the average mortgage SVR of 8.49% as well as offering additional safeguards such as surety of tenure and a no negative equity guarantee. As we enter the new dawn of Consumer Duty, the sector can be confident of the value being provided to customers in our target market.”

“Furthermore, the increasingly flexible nature of equity release, including features which encourage ad hoc repayments as well as the servicing of interest, now make the products suitable for a broad profile of older homeowners by enabling them to make active choices around their borrowing through later life. Against this backdrop, we have seen a slight increase in the number of people using equity release for more discretionary purposes and the discussions around the use of housing equity becoming more common in wider advice conversations.”

“Looking to H2 2023, I firmly believe that we will see a more buoyant market based on increased customer demand. How we service this demand will be vital and I envisage more innovation in products and advice propositions to ensure that good customer outcomes are achieved.”

Ben Waugh, Managing Director at more2life, said “While total lending fell slightly to £664m in Q2, the market has certainly settled into a more optimistic position than it was in at the start of the year. Rising interest rates contributed to a foreseeable drop in new plans, but encouragingly the Equity Release Council data suggests new customer levels began to pick up towards the end of the quarter, rising to 2,462 in June – a 23% increase from April.”

“As with other residential property markets in the UK, the later life lending market is gradually becoming accustomed to the new normal and today’s figures suggest that that customers are starting to look forward rather than backward. We know rates are higher, LTVs are lower and there are fewer product options available, but this does not change the fact that there is clear pent up customer need.”

“Whether they need to repay an outstanding mortgage, increase their retirement income or wish to provide a boost to family, many older people recognise the role that housing equity can plan. It is our responsibility to consider how we can innovate, educate and adapt to ensure that customers in this market receive the good outcomes they expect.”