Despite a cooling in house prices, property wealth grew by 8% year-on-year to reach £5.6 trn by the end of 2022, equating to £228,300 per household.
As mortgage debt reached a record £1.6trn, many individuals may need to access later life lending products as they grow older.
Equity release could significantly improve pensioners’ standard of living, with the average single pensioner able to support a moderate lifestyle for 12 years or a comfortable lifestyle for five years using this option.
The Equity Release Council’s Spring Market Report revealed that product supply and pricing have improved since the Autumn 2022 mini-Budget, with average rates falling for five consecutive months after peaking in November.
Over 190,000 penalty-free part repayments were made last year, with more than 90,000 equity release customers reducing their debt by a combined £102m and saving £116m in future interest costs.
David Burrowes, chair of the Equity Release Council, highlighted the importance of later life lending products amidst the UK’s economic uncertainty, stating: “The economic uncertainty gripping the UK makes it even more likely that people will need to call on later life lending products for financial support and security in future.
“A nation where so many pensioners struggle to afford a moderate standard of living simply cannot ignore the potential for property wealth to bridge the gap.”
The Market Report shows that the equity release market remains resilient and adaptable, offering customers a wide range of options.
Almost all products (96%) come with fixed early repayment charges (ERCs) that typically decrease to 0% over time on a sliding scale.
More than one in three products (35%) are potentially available on sheltered or age-restricted accommodation, subject to lending criteria.
Nearly three in four products (72%) provide downsizing protection, enabling customers to repay their plan with no ERC when moving to a smaller property.
While one in three products (32%) offer inheritance protection, allowing customers to ringfence a guaranteed minimum amount of property wealth to leave behind.
Equity release activity reached record levels in H2 2022, despite the after-effects of the mini-Budget in September prompting a slowdown in Q4.
Since then, product pricing has gradually fallen over the last five months to an average of 6.23% at the start of April 2023, with advertised rates as low as 5.52%.
Product numbers have edged back towards 200, although maximum loan-to-values (LTVs) have been tightened from 47.0% in August 2022 to 38.7% in April 2023.
This month’s print magazine of The Intermediary focused on the later life market – you can read it here.
Reaction
Stuart Wilson, chairman of Air Club:
“While there is no doubt that the equity release market has seen some challenges over the last six months, today’s report highlights the resilience and hard work of the advisers, lenders and service providers in this market.
“With lower LTVs and higher rates, advisers have really focused on educating customers as to the flexibility of these products and the vital importance of actively managing their borrowing. Hard discussions have no doubt taken place about how much people should borrow, when they should borrow and what level of payments may be appropriate.
“The 48% rise in people making repayments year on year is not only great news but provides us with a platform on which to innovate. With customers more open to the idea of using different methods to manage secure debt in retirement, there is much that we can do to facilitate this and help people find the right option for their individual circumstances.”
Stephen Lowe, group communications director at retirement specialist Just Group:
“The equity release market has had a long period of growth, but like the mainstream mortgage market it is not immune to the changing economic situation and the recent hikes in interest rates that are making many people look closely at their financial decisions.
“The Council’s Spring report highlights how the extra features and flexibility built into many equity release plans are helping people, for example by putting them in a position to make partial repayments. The Equity Release Council and its members deserve credit for focusing on this kind of flexibility as part of their commitment to improving consumer choice and protection.
“For many people their house is their single most valuable asset and this underlines the role of equity release in wider financial planning and how property can be used to help people generate significant capital sums and sustain or improve people’s incomes in retirement.
“As always, high quality professional advice is essential to helping people decide if equity release is right for them and, if so, to make sure they select the best options for their own particular circumstances.”
Simon Gray, managing director at equity release advisory firm HUB Financial Solutions:
“This Spring report from the Equity Release Council usefully highlights how the range and flexibility of modern equity release products continue to help people achieve their financial goals, despite the changed economic environment and higher interest rates of recent months.
“For many customers, their needs have not changed, and equity release remains a powerful tool to help them generate a significant lump-sum and maintain or top up their income in retirement.
“It’s in more challenging economic times that the value of high-quality professional advice is clearly seen, as it ensures people think carefully about what their goals are and the best ways to achieve them. Many people are not in a position to delay decisions or to wait for the market to achieve some kind of ‘new normal’ and for these customers high quality advice will help them make decisions now that will stand them in good stead for the months and years ahead.”
Craig Brown, CEO of Legal & General Home Finance:
“A 48% growth in the number of people making repayments in an effort minimise their interest roll-up and debt really demonstrates the impact that product innovation within later-life lending has had on improved customer outcomes.
“When launched, Legal & General’s Optional Payment Lifetime Mortgage was one of the first products of its kind, allowing customers to service the interest on their loans through a regular monthly direct debit.
“An increase in this sort of penalty-free option to make repayments shows how the industry is adapting to be more flexible which, as a result, will make it more accessible to a broader range of potential customers.
“The Equity Release Council’s (ERC) report also highlights that the average income of a single pensioner doesn’t meet a minimum standard of living, as defined by the Pensions and Lifetime Savings Association (PLSA).
“This is likely due to a range of factors, from longer lifespans prompting the need for larger retirement pots, to living costs increasing by 20% for retired people as a result of the current high-cost environment.
“However, as the ERC’s report identifies, accessing property wealth can help people to support moderate or even comfortable standards of living when used to supplement other assets and sources of income in retirement.
“Legal & General’s Equity Economy report also found that an ever-increasing number of younger homeowners are likely to turn to equity release for just this reason; while one in 20 homeowners currently use equity release to fund retirement, this is anticipated to almost double to one in 10 (11%) based on the anticipated plans of younger homeowners.
“This shift reflects the consistent increase in property values, which have made homes such an important asset to be considered as part of long-term financial planning, but it also demonstrates the growing trust in equity release as a result of product innovation and consumer protections.
“We also anticipate that this will see equity release become one of the primary sources of funding to support family gifting.
“Providing financial help to loved ones has been a consistent reason for taking out a lifetime mortgage, as homeowners use the equity built up in their own properties to help younger family members onto the housing ladder.”
