While the mini-Budget in September 2022 saw a slowdown in the later life lending market in Q4 2022, strong performance across the rest of the year saw the market hit a record high of £5.58bn in new lending, new data from Key Later Life Finance shows.
Plan sales grew by 25% compared with last year to 52,295 – more than 4,300 plans a month – while the value of new equity released increased by 27% to £5.58bn.
Once borrowing by existing customers via drawdown and further advances is included total borrowing hit £6.3bn.
Will Hale (pictured), CEO at Key, said: “While hitting a record £5.58bn worth of new equity released is a sign of a vibrant market with strong underlying customer demand and a competitive product landscape, there is no denying that the mini-Budget created a different landscape in Q4 and one that has prevailed into the new year.
“Higher interest rates, lower loan-to-values (LTVs) and fewer products available, has meant that advisers have understandably adopted a prudent approach when helping customers consider their options.”
Although the long-term drivers of the market remain strong, interest rates which increased sharply in Q4 and the reduction in the number of products available saw lending volumes plateau following the September mini-Budget.
Traditionally, the strongest quarter of the year, Q4 2022 saw more modest lending amounts (£101,366) than Q3 (£108,180) as customers constrained by lower LTVs were cautious about borrowing.
Around £3.3bn of the property wealth released in the year was used to repay unsecured or secured debt as new customers focused on strengthening their finances as rising interest rates and inflation ate into retirement budgets.
Around half (50%) of the £3.3bn was used to repay existing mortgages while 38% was used to rebroke existing release plans and 12% to pay off unsecured debts such as credit cards or loans.
While the numbers refinancing equity release products rose from 5,295 in 2021 to 7,252 in 2022 much of this was driven by activity early in the year.
Rate rises since the mini-budget – average rates were 5.7% at the end of 2022 compared with 3.07% at the end of 2021 – are expected to change the remortgaging market but product flexibility and shorter early redemption periods will continue to support customers.
Year on year, the average amount released last year rose slightly to £106,806 compared with £104,792 in 2021 but that rose as high as £231,694 in London during 2022 and dropped to as low as £60,282 in Northern Ireland.
With customers focusing on debt repayment during the year spending on other uses of equity release fell – around 20% of customers used some or all of their property wealth to gift money to relatives compared with 21% the year before.
The number of customers however using some of their equity release to fund holidays doubled to 14% from 7% in the previous year, as we started to see people return to travel following Covid travel restrictions.
However, just 2% of the total proceeds of equity release in 2022 were spent on holidays.
Around two-fifths (39%) of customers used some or all of the proceeds for home and garden improvements compared with 34% in 2021.
Key’s data shows the average age of customers remained stable at 71 with just 6% of customers younger than 60. Around 75% are aged 65-plus.
Hale added: “Balancing both short-term needs and long-term implications, customers and their advisers are sometimes delaying the decision to take equity from the home or taking out less as a lump sum in the knowledge that drawdown facilities and further advances may be accessed in the future as and when required.
“However, across the full year the sector still helped people repay more than £3.3bn worth of both secured and unsecured debt.
“Accompanied by appropriate specialist advice, this type of refinancing can be suitable for certain customers who may be struggling to meet their outgoings during the current cost-of-living crisis.
“Modern equity release products which allow either interest to be serviced and/or ad hoc capital repayments to be made are well-positioned to help people actively manage their borrowing – something which is particularly important given the impact of compound interest in a higher rate
“For some customers, engaging with debt management charities, accessing alternative later life lending products, downsizing or working longer may be the answer to their financial challenges.
He continued: “That being acknowledged, it is equally important that the equity release sector continues to educate consumers and intermediaries operating across the financial services landscape around the features and benefits offered by lifetime mortgages.
“The wants and needs these products can meet are wide-ranging and they can be a suitable option for many older people.
“It is particularly critical in this market that advice is highly personalised and that potential vulnerabilities are identified and taken into account through the process.
Hale concluded: “Equity release can only be accessed with the support of a specialist broker and with the customer having received independent legal advice.
“As we move through 2023 we expect more and more people to choose to start that conversation and therefore take the first step towards finding a suitable solution for their individual circumstances now and in the future.”
Reaction
Kay Westgarth of Standard Life Home Finance:
“The full year 2022 report from Key Group today makes for interesting reading, as the equity release sector has had to balance a strong year overall with the market challenges we saw in Q4 after the mini-Budget.
“Despite this volatility, the number of new plans rose by 25% to 52,295 and the value of equity released grew by 27% – a clear demonstration that equity release has a role to play in the current market as a financial tool for over-55s.
“While Q4 is usually the strongest quarter of the year for the later life market, the mini-Budget impacted consumer confidence as well as interest rates and product availability, leading to more modest lending amounts in this period.
“That said, there are more tools available than ever before for borrowers in our sector, giving advisers more flexibility to get the best outcomes for their clients in a time of increased financial pressure.
“Equity release is not a ‘one size fits all’ product, so now is the time for advisers to focus on ensuring advice is as personalised as possible, flexible features are fully understood and they help customers make smart choices around what works for them now and in the future.”
Les Pick, director of manufacturing and adviser propositions, more2life:
“Today’s data from Key Group caps off what was, on the whole, a very strong year in the equity release market, despite the challenges of Q4 2022. The full year saw £5.58bn in lending, on top of substantial increases in both plan sales and value of new equity released, demonstrating the progress made and overall growth of the sector.
“Momentum admittedly slowed towards the back end of the year, after the significant volatility of September’s mini-budget created implications for the mortgage sector as a whole, including equity release. Response from our market sector was strong, however, and there is confidence among lenders and advisers that while we need to adapt to the new normal, the later life market will play a crucial role in supporting older customers.
“Through careful consideration and collaboration between lenders and advisers, our sector will continue to adapt to the higher interest rate environment and help over-55s use their housing equity to their benefit.”
Jim Boyd, CEO of the Equity Release Council:
“These figures represent another significant step up for a market which was barely registering £1bn of lending activity ten years ago. Equity release product design has come on leaps and bounds in the last decade, and today’s products have been transformed to balance strong consumer protections with greater flexibility.
“It’s clear the dust is still settling from the Autumn mini-Budget. However, beyond short-term uncertainty, the long-term drivers that make property wealth a vital component of modern retirement planning are firmly intact.
“The reimagining of modern equity release products means no adviser’s retirement offer can truly be considered complete without an awareness of how today’s lifetime mortgages, backed by Council standards, can support their clients and their families to manage their finances in later life.
“Any homeowner considering equity release in the current climate should seek out both financial and legal advice, by working with a Council member, to make sure any choice is a good fit for their long-term needs.”
Stuart Wilson, chairman of Air Club:
“Despite the impact of the mini-budget and subsequent economic downturn, today’s data from Key Group shows that the equity release market had a positive year overall. This bodes well for the long-term future of the sector but in the shorter-term, I do think advisers and lenders will need to adapt to the new market drivers.
“A perfect example of the challenges we face are the higher interest rates, lower LTVs and smaller number of products on offer that the Market Monitor has highlighted. In an effort to manage this, providers have worked hard to make products as flexible as possible and we’ve seen a year-on-year increase in the availability of both downsizing protection and inheritance protection. These are positive steps forward and how we can best support customers’ needs to be front of mind.
“In order to provide advice on equity release, you need both CeMAP and CeRER or the equivalent but with 75% of equity release borrowers being over-65, this is just the starting point. Building an understanding of vulnerability, developing new soft skills and understanding wider market context is all essential – especially at the moment.
“Taking advantage of the support and training offered by lenders as well as organisations like Air Academy can help advisers better serve their customers and navigate upcoming challenges such as these new market drivers and regulatory change including Consumer Duty.”
