Equity release market resumed growth path in 2022 before disruption in Q4
Total lending for the equity release market in 2022 reached £6.2bn, a 29% increase from £4.8bn in 2021 and a new annual record, according to new data released by the Equity Release Council.
Across 2022, a total of 93,421 customers took out new plans, made use of drawdown facilities or agreed extensions to existing plans.
This represents a year-on-year increase of 23% and surpasses by some margin the previous peak of 85,497 customers in 2019.
It means the equity release market has doubled in size over the last five years, having seen £3.06bn of annual lending in 2017.
David Burrowes, chairman of the equity release council, said:
“We saw a glimpse of the equity release market’s potential in 2022 as it returned to its previous growth path with a growing customer base making use of improved products and added protections. “In a climate where retirement incomes have to stretch further for longer, property wealth is as important to many people’s financial wellbeing as their pension.
“The unmet needs of the UK’s ageing population have seen the equity release market double in size since 2017, channelling decades of experience in helping older homeowners to gain financial freedom.
“Today’s equity release customers are more in control of their costs than ever before, with the right to make voluntary penalty-free partial repayments and the option of fixed early repayment charges which reduce to 0% over time.”
However, during Q4, total new and returning equity release customers served reached 20,597, down from the record Q3 2022 figure of 25,591 but a modest 3% year-on-year rise from 19,975 in Q4 2021.
Customers borrowed £1.36bn of property wealth between October and December, marginally higher than £1.34bn one year earlier but down 20% from £1.71bn between July and September – bucking the usual trend whereby Q4 is the busiest quarter of the year.
2022 saw nearly 50,000 (49,285) new plans agreed, a 20% increase on the 2021 total of 40,964 and a new record figure, exceeding the previous high of 46,397 from 2018.
Since 28 March 2022, all new plans have guaranteed customers the right to make voluntary penalty-free partial repayments without risking repossession if they cannot afford to do so.
11,174 new plans were agreed from October to December, down 17% from the previous quarter.
This bucks the typical seasonal trend whereby Q4 is normally the busiest of the year and reflects the sharp change in market conditions in the final months of 2022 following a period of gradually increasing interest rates earlier in the year.
October was the busiest month of Q4 2022 for new plans agreed (4,736) as pipeline cases progressed from before the mini-Budget.
In contrast, with just 2,074 new plans, December was not only the quietest month of Q4 but quieter than any month since before the Covid-19 pandemic broke out (the low-point of the pandemic having been May 2020 during the first UK lockdown when 2,229 new plans were completed).
Across 2022 as a whole, 52% of new customers opted for lump sum plans, up from 43% in the previous year.
One factor in this is likely to be customers reaching the end of existing capital repayment or interest-only mortgages and seeking a way to remain in their homes without the risk of repossession that comes with fixed monthly repayment commitments.
While just over half of new customers in Q4 opted for lump sum lifetime mortgages over drawdown lifetime mortgages, both product types saw average loan sizes drop back.
The average new lump sum plan was £128,382 in Q4, down 4% from £133,770 in Q3, while the average first instalment of a drawdown plan dropped 6% from £88,340 to £82,643.
Burrowes added: “Factors outside the industry’s control meant 2022 ended on an unusually quiet note in December, after the mini-Budget fuelled rate rises and tightening criteria.
“However, releasing equity is not a choice to make on a whim, and we are encouraged by signs that customers are pausing to assess their options.
“Seeking informed financial advice and independent legal advice from firms who sign up to Council standards is essential at the best of times, and more so now than ever.
He concluded: “While some consumers may delay a decision about unlocking property wealth in 2023, many people will find that releasing equity is an appealing and essential step to move ahead with their lives and support their families’ needs.”
Will Hale, CEO at Key Later Life Finance:
“Today’s figures from the Equity Release Council highlight a healthy later life lending market but one not immune from the impact of the mini-Budget. Their figures suggest that while total lending hitting a new high of £6.2 billion, December was the quietest month since before the COVID-19 pandemic.
“Increased product flexibility and choice has seen the market double in size since 2017 as more people look to improve their retirement finances with the support of housing equity. While rates have increased post the mini-Budget, customers are able to take a more active approach to managing their borrowing using the ability to service interest and/or make ad hoc capital repayments which are common features now across modern lifetime mortgages. Important customer protections such as the no-negative equity guarantee and guarantee of tenure continue to be embedded in all products with features such as inheritance protection offering further flexibility. Also, lifetime mortgages no longer have to be a product for life with fixed early repayment charges creating opportunities for customers to re-mortgage down the line.
“There is no doubt that borrowers and their advisers have become more cautious – and rightly so in this higher interest rate environment. However, whether the answer is downsizing, a retirement interest-only product, equity release or delaying a decision altogether, specialist advice remains vital in helping customers make the best choice for their individual circumstances.
“Equity release is not suitable in all situations but with many people struggling with increasing mortgage payments and rising household bills the sector has an important role to play in helping customers navigate their way through the cost of living crisis and to continue to live a secure and fulfilling later life.”
Stephen Lowe, group communications director at retirement specialist Just Group:
“The equity release market set new records during 2022 but the year ended on a cautious note. Total lending of £6.2bn was a record year by some margin, 29% above the figure for 2021 with a record number of customers too.
“Yet the last quarter of the year, usually a strong period, showed a drop off which is understandable given some of the disruption, such as the hikes in interest rates to deal with spiking inflation and the reaction to September’s ‘mini-Budget’.
“There are many individual homeowners with needs that will only be met by accessing some of the equity in their homes and the long-term structural drivers of growth remain strong.
“High quality professional financial advice remains key to ensuring that where a lifetime mortgage is recommended to a potential customer it is because it fits that customer’s requirements and is their best option. In many cases we know that good advisers will recommend another course of action or find another source of funds, such as State benefits or down-sizing. But where releasing equity is suitable, it can be very effective whether the goal is to provide a lump sum, generate a regular income, pay for care or support estate-planning.”
Simon Gray, managing director at equity release advisory firm HUB Financial Solutions:
“In 2022 the industry helped more customers to meet their objectives and record amounts of lending were recorded. The final quarter wasn’t as busy as people paused in response to the disruption triggered by the volatility in markets following the September fiscal event.
“From the customer’s point of view – good practice remains the same regardless of the external environment. High-quality professional advice is essential to understanding the market and providing robust, repeatable personal recommendations that are in customers’ best interests. Advice helps homeowners consider all their options and navigate what can be a complex market with a wide range of providers, rates and terms.
“Lifetime mortgages can work for a wide range of people looking to boost income, raise a lump sum or gift money but in many cases our professional advisers do find other solutions that better fit the needs of our client. There remains huge potential for homeowners to use property wealth to make their lifestyles become more comfortable or to help their families. In this ever-changing market, professional advice is the best way to help people to understand whether using a lifetime mortgage is their best solution.”