The number of active equity release customers in Q2 rose slightly to 17,028, data from the Equity Release Council’s (ERC) Q2 2023 market statistics report has found.
This figure marks a 2% growth from the previous quarter, despite remaining 29% down year-on-year.
Total equity lending in Q2 came in at over £664m, down 5% from the previous quarter, making it the quietest period since Q3 in 2016, which recorded £571m in lending.
New customers increasingly opted for drawdown lifetime mortgages over lump sums, while the average first instalment from a new drawdown plan was 35% lower than a year ago, coming in at £59,294 (£90,646 in Q2 2022).
April was the quietest month of Q2, with the number of new plans picking up in May and again in June, as monthly activity reached its highest point of the year-to-date.
David Burrowes, chair of the Equity Release Council, said: “Higher interest rates have inevitably had a significant impact on the demand for lifetime mortgages like other mortgages, but the gap between residential and lifetime mortgage rates has narrowed over the last year.
“Equity release remains competitive and has lost none of the extra protections that have been added in recent years.
“Innovations in equity release can come into their own in a higher rate environment, with drawdowns allowing customers to take what they need in the short-term and make extra withdrawals in future if their circumstances change and interest rates fall.
“Optional repayments also give people freedom to keep their borrowing under control by limiting the effect of compound interest.”
He continued: “The socio-economic factors for releasing equity remain. People are living longer; they are not saving enough for retirement and they want to help themselves and their loved ones to live more comfortable lives.
“We have seen steady growth in new customer activity in Q2, with June the busiest month of the year so far. While it is too early to call this as the start of the recovery, there is cause for cautious optimism and we remain confident in the strength of the market.”
Burrowes concluded: “Financial and legal advice remain vitally important to help customers understand their options.
“Equity release products are crucial in helping to meet current needs and avoid a later life lending drought, with higher interest rates and affordability tests making capital repayment or interest-only options harder for older borrowers to access.”
Reaction:
Kay Westgarth, sales director at Standard Life Home Finance:
“While 2022 was a record year for the equity release market, the mini-Budget and resulting economic uncertainty caused significant disruption that we are still seeing the impact of today.
“However, while April was the quietest month in 2023, things have started to pick up and the Equity Release Council figures suggest that June saw the highest level of actively year to date.
“This bodes well for the remainder of 2023 as the number of products on the market are starting to rise, and with pressures on LTVs easing, we will be able to support more customers.
“The recent Key Market Monitor suggested that we’ve also seen a slight uplift in people using equity release for discretionary spending which suggests greater confidence about accessing housing equity – even if a potential correction is still being discussed.
“Although nothing is guaranteed and – as we’ve seen over the last few years – the residential property market in the UK can be impacted by forces beyond its control, the figures suggest that we can expect a more positive H2.
“Innovation is on the horizon and advisers are working hard to ensure that clients not only understand all their choices but make the right decisions for their individual circumstances.”
Simon Gray, managing director at equity release advisory firm HUB Financial Solutions:
“This update 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.”
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.
“June saw the highest level of new plans in the market this year as activity increased from a quiet April.
“Customers are taking advantage of the flexibility a drawdown facility offers to manage the interest on the loan by taking only what they absolutely need now and leaving themselves with the option to draw further funds as they need in the future.
“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.”
Ben Waugh, managing director at more2life:
“While total lending fell slightly to £664m in Q2, the market has certainly settled into a more optimistic position than it was in at the start of the year.
“Rising interest rates contributed to a foreseeable drop in new plans, but encouragingly the Equity Release Council data suggests new customer levels began to pick up towards the end of the quarter, rising to 2,462 in June – a 23% increase from April.
“As with other residential property markets in the UK, the later life lending market is gradually becoming accustomed to the new normal and today’s figures suggest that that customers are starting to look forward rather than backward.
“We know rates are higher, LTVs are lower and there are fewer product options available, but this does not change the fact that there is clear pent up customer need.
“Whether they need to repay an outstanding mortgage, increase their retirement income or wish to provide a boost to family, many older people recognise the role that housing equity can plan.
“It is our responsibility to consider how we can innovate, educate and adapt to ensure that customers in this market receive the good outcomes they expect under Consumer Duty.”
Craig Brown, CEO of Legal & General Home Finance:
“It is interesting to note that the Equity Release Council’s data shows customers taking a cautious approach in the current market, with an increase in people turning to drawdown products rather a lump sum.
“The ability to drawdown in stages gives homeowners control, something Legal & General has taken initiative towards and strived to make more accessible, to ensure our customers borrow what they need, when they need it.
“In line with that, we recently reduced our minimum drawdown amount to £1,000 to help as many people as possible wishing to use their property to meet their retirement needs.
“We know that lifetime mortgages support a range of needs, including gifting funds to support loved ones. Our most recent internal data also showed that home improvements are still the most popular use of funds, helping those in later life stay in their forever homes.”
Mark Gregory, founder and CEO of Equity Release Supermarket:
“Similarly to the Equity Release Council’s report out today, we’re seeing renewed optimism and confidence in the market after what has been a challenging H1.
“We have maintained a steady level of enquiries this quarter but with a shift in usage – such as an uplift in debt and mortgage repayment usage.
“We therefore anticipate equity release activity levels to continue, or indeed rise throughout the Summer and leading into the Autumn months, as people look to release equity from their homes to fund the ramifications of the cost-of-living crisis, covering mortgage payments, as well as home improvements.
“The amount of people utilising funds to pay their residential mortgage has increased by 8% in Q2 compared to Q1 of this year, which also equates to 25% of the total usage of funds. The shift in total usage YOY also increased by 25% in comparison to last year, showcasing that the rising interest rates are impacting people’s monthly living expenses.
“We’re also finding that the voluntary payment feature within lifetime mortgages has been a game changer for customers this past year, given the higher interest rates.
“We expect equity release will continue to form a large support pool for retirement needs as people utilise their property to bridge the gap, utilising finances for lifestyle goals, home improvements, affordability, and gifting.
“Plus, with equity release becoming a far more flexible and versatile product than ever before, it’s proving increasingly popular. We’ve found that usage of our voluntary payment’s calculator increased by 128% in the last quarter, as people investigate how to keep the balance in check.
“We’ve still some way to go until the market experiences 2022 activity levels, but now is the time for businesses to drive efficiencies and align their priorities in order to pivot for growth.
“Support will also be required from lenders with the aid of product innovation to fuel the industry and fulfil consumer demand.”
