It’s been clear for some while that the equity release market is continuing to expand following 2021’s return to growth.
Research earlier in the year from the Equity Release Council (ERC) showed a further increase in the number of equity release customers in the first quarter with 23,395 new and returning customers withdrawing equity from their property during first three months – a new record.
12,174 new plans were agreed, which represents a 21% increase from this time last year. Drawdown lifetime mortgages proved the most popular, with 54% of customers withdrawing equity using this product.
In the second quarter’s figures, homeowners released a further £1.6bn bringing the total for the first six months to £3.13bn and lenders are now on track to exceed last year’s record total of £4.8bn — which was itself far ahead of the previous biggest figure — £3.94bn in 2018.
It is perhaps less surprising that the number of borrowers has been spurred by the Bank of England’s fight against inflation and subsequent raising of interest rates.
Rates have risen five times and the cheapest equity release mortgage has increased from a lifetime fixed rate of 2.5 per cent last October to 4.27 per cent currently.
The cost-of-living squeeze has given more people at the top of the housing chain more reasons to release capital to support other family members as well as face the increase in prices themselves.
All this growth is welcome, but it also comes with some consequences. Greater demand has fuelled greater interest in the number of lenders and the volume of available deals has grown accordingly.
There are currently 631 deals to choose from, compared to 463 in July 2020 with an average interest rate hit 5.77 per cent in August 2022, according to data provider Moneyfacts. But more competition for lending inevitably results in pressure on margins.
Some lenders have already publicly communicated their reluctant to get into a fight for business – and other have sought refuge in specialist areas such as high value properties which can command better pricing.
It’s important not to lose sight of the fact that this is not standard lending. Loans have to be serviced but not in the same way mortgages need to be managed.
Most of these lenders are funded by pension money which, by its nature, is international in its appetite for returns and can be pushed into other markets where there are more lucrative gains to be had. It means lenders can dip in and out more easily according to market conditions.
Finally, the strains of the cost-of-living crisis and inflation may yet be felt in the broader economy in terms of unemployment. There is a slight concern about lending at the top of the market when house prices may come down leading to possible increase in negative equity positions.
More demand has attracted more interest but the continued growth for equity release products may not be met with the same enthusiasm from all funders and lenders.
James Ginley is technical surveying director at e.surv
