Customer confidence in the equity release market started to improve in Q2, as the average amount released also rose, research from Key Later Life Finance has revealed.
Key’s Market Monitor highlighted that, while the full impact of the economic uncertainty was felt in Q1 2023, the market had started to turn a corner in Q2 2023, with decline slowing.
The number of plans taken out fell by just 11% compared with Q1, to 6,219, while the total value of new releases was only 9% lower at £518m.
With available loan-to-values (LTVs) rising, the average amount released by customers increased by 2% to £83,340.
However, compared to the first half of 2022 – which was the midpoint in a record-breaking year for the market – plan sales in the first half of this year were 48% lower at 13,194, and the total value of new releases dropped 57% to £1.09bn.
The average amount released in the first half of last year was £100,468 (H1 2023: £82,475).
With the average standard variable rate (SVR) on a residential mortgage reaching 7.52% at the end of Q2 2023, but the average rate on equity release plan hitting 6.3%, older borrowers looked to use these products as well as the features the boast to manage their essential borrowing.
The data showed that in H1 2023, 32% of the money released was used to repay mortgages, 14% was spent on rebroking existing equity release plans, and 5% was used to pay off unsecured borrowing.
One in five customers used property wealth to help family, while 45% used some or all of the proceeds on home renovations with a particular focus on investments in essential or money saving repairs on their property.
Around £131m (12%) of the money released was spent on home improvements.
The average age of customers in the first half of 2023 increased by a year to 71, as lower LTVs and higher rates saw younger customers consider a wider range of options.
Around one in four customers in the six-month period were under 65 and they tended to use equity release to manage secure and unsecured debts.
Will Hale (pictured), CEO at Key, said: “As with all other residential property markets, the later life lending market has had a tough start to the year, but all the indicators suggest that the second half of the year should be stronger than the first half.
“Indeed, we’ve started to see some green shoots with the average amount released increasing slightly and more spending on gifting, home improvements and other discretionary expenses in Q2.
He added: “As customer confidence starts to improve and lenders step up to the challenge of meeting their demands, we do expect overall borrowing to increase and more people to benefit from accessing their housing equity.
“This could arguably not come at a better time as even with the bumper state pension increases and the Government’s mortgage support measures, the cost-of-living crisis continues to be felt.”
Key’s research also found that plan sales and the total value of new equity fell in every region.
However, Scotland (-36%) saw the smallest drop in the amount of equity released, followed by Northern Ireland (-38%).
Scotland also recorded the smallest fall in the number of plan sales (-28%) and moved from 9th out of the 12 regions to 7th on the size of the market, while East Anglia dropped from 7th to 9th.
The South East of England and London markets, which tend to be driven by gifting, inheritance tax planning and other discretionary spending, remained the largest markets in the UK despite being particularly hard hit.
Hale continued: “Looking to the future, while the modern equity release products available have more in-build flexibilities than ever before – and the rates are comparable to those on residential mortgages – we do expect the sector to evolve.
“This is vitally important to ensure that we can support underserved areas of the market and I feel confident saying that we will also see some significant product innovation before the end of the year.”
Craig Brown, CEO of Legal & General Home Finance, added: “Key’s Market Monitor shows that property wealth continues to be a steady and significant asset for people looking to boost their income.
“In the current climate, homeowners will be thinking about their options carefully, especially with rates expected to remain high.
“However, these findings suggest confidence is slowly returning. Whilst the later life lending sector has seen a dip in demand during the first half of the year, the next period is predicted to improve.”
Brown continued: “We’re going through a period of constant change; adaptability and innovation are key to catering to customers’ increasingly complex needs.
“At Legal & General Home Finance we’re constantly looking to grow the market and bring new initiatives that help customers continue to get more value from their homes, whether that is to repay mortgages, improve their homes or gift to their loved ones.”
