Equity release market adapts to interest rate fluctuations

The equity release market experienced a significant downturn in Q1 2023 as the number of new and returning customers declined to 16,691, marking a 19% decrease from Q4 2022 and a 29% drop compared to the previous year.

A total of £699m was lent in this quarter, the lowest figure since Q2 2020.

In response to the higher interest rate environment, new customers reduced their loan sizes in Q1 2023.

The average first release from a new drawdown lifetime mortgage fell 34% year-on-year to £61,785 – the lowest in nearly six years.

The average new lump sum lifetime mortgage also decreased by 22% year-on-year, with customers borrowing £102,405 each between January and March, in contrast to the £131,781 recorded a year earlier.

David Burrowes (pictured), chair of the Equity Release Council, acknowledged the impact of higher interest rates on the market but expressed optimism about a possible recovery: “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.”

He stressed the importance of appropriate timing and suitability for customers considering equity release, as well as the benefits of recent product innovations that offer more flexibility and cost control: “Suitability and timing are everything when it comes to deciding to release equity.

“For some, it has made sense to continue with their plans. Other would-be customers have evidently been biding their time to see what interest rates do next.”

As the equity release market adapts to the changing economic landscape, customers are advised to seek guidance from Council members to make informed decisions that take into account both short and long-term considerations.

Burrowes added: “Seeking advice from a Council member is essential to weigh up short and long-term considerations so that customers understand all their options and alternatives when making a plan.”

With a potential market recovery on the horizon, it remains crucial for customers to understand all their options and alternatives when planning their financial future.


Ashley Shepherd, founder and managing director at Over50Choices:

“The dip in new business at the start of this year was to be expected with some of the highest rates seen for many years, which was particularly unpalatable for those who had made enquiries when rates were closer to 3%. With rates now settling to the new normal, with hopefully more falls in rates to come, we anticipate this downturn to be short-lived.

“Yet, despite its popularity in recent years and the reforms that have been made for the good of the consumer, equity release is a market that is still not fully understood by its target market.  While every product that meets Council standards now allows people to make loan repayments to ease the build-up of interest, only one in five (22%) of over-55s in our research understand this, while a further 65% do not know if they can or not.

“Making the decision to take out equity release should not be taken lightly and not without fully understanding both the pros and the cons, which is why educating and empowering consumers is so crucial.”

Stephen Lowe, group communications director at retirement specialist Just Group:

“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.

“Demand from customers with core needs remains strong and the structural drivers of consumer demand over the medium term remain intact. Lifetime mortgages offer a way for homeowners to use their property wealth in later life, whether that is to boost regular income, pay off expensive debt, release lump sums or gift money to loved ones.

“It is essential customer understand their options and use equity release when it is most suitable for their particular circumstances. Today’s lifetime mortgages offer flexibility and a wide range of features, such as accessing medically underwritten rates to using drawdown arrangements to interest-servicing – all of which can reduce borrowing costs.

“It’s a complex market, reinforcing the need for high-quality professional financial advice to investigate the alternatives available to customers. Only then can a customer decide whether a lifetime mortgage really is the best solution and, if so, an adviser can guide the customers to a product with the optimal blend of features to meet the customers’ needs.”

Steve Wilkie, executive chairman of later life mortgage broker Responsible Life

“The turmoil caused in the wake of Liz Truss’s disastrous mini-budget in September can be clearly seen here in the spike in interest rates and drop in new equity release customers experienced in Q1 2003. 

“Whilst it was a significant bump in the road for the equity release market, the recovery is underway as evidenced by an uptick in activity we’ve seen over the past month.

“Calmer guidance from the new government has seen markets cool, interest rates begin to fall, and customers return to unlock value from their property wealth, improve their lives in retirement, and provide support for their families.

“Higher rates have certainly given customers pause for thought, and new customers will have to understand that sub-4% equity release rates are unlikely to return to the market for some time.

“But equity release has evolved as a product and the flexibility available across the market now gives customers far more control over managing the impact of rolled-up interest.

“They can make full interest repayments, partial repayments or none at all, and they can change their mind to adapt to changing personal circumstances.

“Paying as little as £100 a month in repayments can save lifetime mortgage customers tens of thousands of pounds and have a huge impact on the amount of equity left in the home at the end of the loan term.

“And we’re seeing more people than ever before choosing to pay some of the interest on their loans, keeping the cost of using equity in their homes down even in periods where rates are higher.”

Kay Westgarth, director of sales at Standard Life Home Finance:

“Today’s figures from the Council highlight what has been a challenging period for the later life lending market.  Having seen record figures in 2022, the September mini-Budget saw rates increase, LTVs fall and some customers adopt a ‘wait and see’ attitude to accessing housing wealth.

“This impact is clearly seen in Q1 2023 but we do believe that, given the strong underlying customer demand and innovation seen across the market, subsequent quarters will see stronger lending volumes.  

“This innovation is key to supporting a wider range of customers with diverse needs. When you consider that customers made £102m worth of ad hoc repayments in 2022, it is clear to see that these flexibilities are providing people with the ability to actively manage their borrowing and tailor products to their own circumstances.

“Using housing equity is becoming increasingly common in retirement and with the support of specialist advice, customers can find the right product for their individual situation.”