Equity release loans top £1.5bn

New equity release lending hit £1.5bn in the third quarter with the average customer borrowing more than £114,000, according research by adviser company, Key.

Plan sales grew by 29% in the three months to September 30th to 13,341 compared with the same quarter last year while the value of new equity released rose to £1.525 billion (£1.049bn). The average amount released in the three months rose to £114,354 with customers in London releasing £261,946 on average. Older homeowner in the South East, South West and West Midlands all released more than £100,000 on average.

Financial management remained the main driver behind the market with almost two thirds (60%) of the amount released being used to manage debt – clear mortgage borrowing (28%), rebroke equity release plan (25%) and repay unsecured borrowing (7%). Financial prudence born out of the pandemic and heighted by the cost-of-living crisis is encouraging over-55s homeowners to reduce their outgoings.

However, one in five customers (20%) still looked to support their families with an average of £53,503 being gifted to help loved ones onto the property ladder, provide an early inheritance, repay debts and even subsidise university fees. The bank of mum and dad (Q3 2022 – 11% of equity released) while providing less funding than in 2021 (17% of proceeds) remains open for business and keen to support the wider family – especially with the recent stamp duty changes.

Key Chief Executive Will Hale said “While there is no doubt that we did see the market return to more normal post-pandemic trading conditions in Q3 2022, the political and economic turmoil over the last few weeks has, like the mainstream mortgage sector, impacted the rates and LTVs available. However, the cost-of-living crisis has continued to bite, inflation has hit double digits and older customers moving from fixed-rate mortgage deals to their lenders standard variable rate have been shocked by the difference.”

“With over-65 homeowners sitting on an estimated £3 trillion of unmortgaged property wealth and four in five of the customers who progress to speaking to one of our advisers looking to address a financial need there is a clearly a key role for the sector to play in helping older customers navigate through the current economic challenges and still live a fulfilling later life.”

“Modern lifetime mortgages have come a long way in a short period of time so when you consider features such as drawdown, the ability to serve interest and/or the opportunity to ad hoc capital repayments free of ERCs, there is more opportunity than ever before for customers to carefully manage their borrowing. The proliferation of fixed early repayment charges which typically disappear after around ten years – although it can be as low as five years – also mean that remortgaging these plans in future is a real option for many people.”

“In these market conditions more than ever before, specialist advice is crucial, Advisers must be prepared to probe and challenge customers on their wants and needs, making them acutely aware of the implications of decisions in both the long and short term and ensure highly personalised recommendations aligned to individual circumstances. All options should be considered as equity release won’t be right for everyone”