The equity release market lifted 27% to hit a record £5.58bn of new lending last year, although loans in the final quarter of the year were knocked by the government’s mini-Budget, data from Key Later Life Finance shows.
Plan sales grew by 25% to 52,295 compared with the previous year, according to the later life lender’s full-year Market Monitor.
The report says product sales were hit by rising interest rates in the final three months of the year after former Chancellor Kwasi Kwarteng’s tax-cutting September mini-Budget, which accelerated already rising mortgage rates. Action taken by current Chancellor Jeremy Hunt in October and in the November Autumn Statement calmed markets, although home loans remain elevated.
The survey says: “The reduction in the number of products available saw lending volumes plateau following the September mini-Budget.
“Traditionally, the strongest quarter of the year, the fourth quarter of 2022 saw more modest lending amounts (£101,366) than the third quarter of (£108,180) as customers constrained by lower loan to values were cautious about borrowing.”
It adds: “Average rates were 5.7% at the end of 2022 compared with 3.07% at the end of 2021 – are expected to change the remortgaging market but product flexibility and shorter early redemption periods will continue to support customers.”
The study says 7,252 borrowers refinanced equity release products last year, compared to 5,295 in 2021, although “much of this was driven by activity early in the year”.
The average amount released last year rose slightly to £106,806 compared with £104,792 in 2021 but that rose as high as £231,694 in London during 2022 and dropped to as low as £60,282 in Northern Ireland.
The survey adds that 31% of borrowers used the cash released to repay unsecured debts, while 27% used it to clear mortgages and 15% remortgaged existing equity release plans.
Once borrowing by existing customers via drawdown and further advances is included total borrowing hit £6.3bn.
Key chief executive Will Hale says: “While hitting a record £5.58bn worth of new equity released is a sign of a vibrant market with strong underlying customer demand and a competitive product landscape, there is no denying that the mini-Budget created a different landscape in the fourth quarter and one that has prevailed into the new year.
“Higher interest rates, lower LTVs and fewer products available has meant that advisers have understandably adopted a prudent approach when helping customers consider their options.
“Balancing both short-term needs and long-term implications, customers and their advisers are sometimes delaying the decision to take equity from the home or taking out less as a lump sum in the knowledge that drawdown facilities and further advances may be accessed in the future as and when required.”
Air Club chairman Stuart Wilson points out: “Despite the impact of the mini-Budget and subsequent economic downturn, today’s data from Key Group shows that the equity release market had a positive year overall.
“This bodes well for the long-term future of the sector but in the shorter term, I do think advisers and lenders will need to adapt to the new market drivers.
“A perfect example of the challenges we face are the higher interest rates, lower LTVs and smaller number of products on offer that the Market Monitor has highlighted.
“In an effort to manage this, providers have worked hard to make products as flexible as possible and we’ve seen a year-on-year increase in the availability of both downsizing protection and inheritance protection.
“These are positive steps forward and how we can best support customers’ needs to be front of mind.”
More2life director of manufacturing and adviser propositions Les Pick adds: “Momentum admittedly slowed towards the back end of the year, after the significant volatility of September’s mini-Budget created implications for the mortgage sector as a whole, including equity release.
“Response from our market sector was strong, however, and there is confidence among lenders and advisers that while we need to adapt to the new normal, the later life market will play a crucial role in supporting older customers.
“Through careful consideration and collaboration between lenders and advisers, our sector will continue to adapt to the higher interest rate environment and help over-55s use their housing equity to their benefit.”
