The number of equity release borrowers tumbled by 29% to 16,691 in the first three months of the year from 12 months ago, Equity Release Council data shows.
Total lending came in at £699m in the first quarter, the lowest quarterly total since the second quarter of 2020, when withdrawals were limited to £698m due to pandemic lockdown restrictions.
Rising interest rates and the aftershock of the September mini-Budget are behind the downturn, says to the trade body’s first quarter market statistics report.
The overall number of borrowers taking up this type of loan is 19% down from the previous quarter.
Among new customers, 6,766 plans were agreed, down 39% on the final quarter of last year and 44% below a year ago.
The survey says: “The higher interest rate environment saw customers reduce the amount they borrowed compared with recent trends.”
It points out that the average first withdrawal from a new drawdown plan over the period was £61,785, down 34% year-on-year, the smallest amount seen since the second quarter of 2017, “despite house prices having risen 30% during this period”.
Among returning customers, the study says: “With interest rates fixed, or capped, at the point of withdrawal for products which meet Equity Release Council standards, the number of existing drawdown customers increased 9% between the fourth quarter of 2022 and the first quarter of 2022, making it the only area of the market which saw growth.”
But it adds that the number of returning drawdown customers was down 18% year-on-year compared with a year ago.
Also, returning customers limited their borrowing, with this average drawdown borrower taking £13,345 from their agreed reserves, down 6% from the previous three months.
However, the report notes that although February was the quietest month of the quarter, “the number of new plans picked up in March, as product pricing continued to recover from its peak in November 2022”.
Equity Release Council chair David Burrowes, Chair says: “People have had to adjust to the realities of a higher interest-rate environment in many aspects of their personal finances.
“These figures show the equity release market has been no exception, although there are early signs, with decreasing rates and returning appetite, that a recovery is underway.”
Just Group communications director Stephen Lowe adds: “Today’s figures show the real impact of interest rate policy which has seen the Bank of England hike the official bank rate from under 1% a year ago to 4.25% today, quickly pushing up borrowing rates across the board.
“Against such a backdrop of uncertainty, it was not surprising to see demand from some potential customers reduce.”
Legal & General Home Finance chief executive Craig Brown points out: “It is understandable that the equity release market has dipped in the first three months of this year, given that customers have been adapting to challenges in the market and assessing their financial responsibilities.
“However, property wealth is still the largest asset for many people, with the latest house price data from Office for National Statistics showing that prices have continued to grow by 5.5% in the 12 months to February 2023.
“Looking at the ERC statistics, we can already see that market activity is starting to recover, as product availability and pricing continue to stabilise. As such, we’re optimistic that the market will continue to improve over the coming months and years ahead.”
HUB Financial Solutions managing director Simon Gray adds: “Market conditions have changed markedly in the last six months and potential new customers are quite rightly assessing their options carefully.
“Existing customers are protected by interest rates that have been fixed from the start of their plan so they avoid the impact of interest rate hikes, but they may benefit from future interest rate drops by re-broking.”
