Equity release market has ‘reasons to be cheerful’

The equity release market has “reasons to be cheerful” as increased product innovation combined with expected base rate cuts and gilt rates moving below 4%, provide the foundations for renewed growth, new data from the UK’s leading equity release adviser Key Later Life Finance shows.

It highlights that after a turbulent year which saw plan sales drop 45% and total lending for both lump-sum and drawdown plans fall 57%, driven by base rate rises and the aftershocks of the September 2022 mini budget, the market has seen a good boost in consumer demand at the start of the year.

Key believes product innovations including the launch of payment-term lifetime mortgages allowing customers to access higher LTVs and often at lower rates than are currently available through traditional equity release products, are very encouraging. Also, to evidence the continuing increase in flexibility that modern lifetime mortgages offer, around 86% of plans sold last year have fixed early repayment charges while 74% have downsizing protection.

The increase in products that include mandatory monthly repayments, optional scheduled repayments or ad hoc repayments is particularly important given the percentage of customers that are using lifetime mortgages to repay existing debt. Mitigating the impact of compound interest through making repayments is important for all customers but is something that those moving directly from traditional mortgages or personal loans should be willing and able to utilise, and in so doing greatly reduce their cost of borrowing over the term of the loan.

The key figures from last year revealed that plan sales fell 45% to 28,752 with 51% of sales accounted for by drawdown and 48% by lump sum mortgages. The total value of lending was £2.7 billion with £2.1 billion new lending plus £411 million of drawdown and £162 million of further advances from existing plans.

What’s more, the average amount released by customers was £74,148 compared with £106,806 in 2022 while the average age of customers rose slightly to 72 from 71 and the average interest paid was 6.63% compared with 5.7% in 2022.

Almost three-quarters (72%) of money released went on mortgage and debt repayments compared with 67% previously. A further 12% of the money released was used to remortgage existing equity release plans. Customers also focused on home and garden improvements with 44% of customers utilising 12% of the cash released to improve the home – most of the money funded home improvements aimed at enhancing the quality of life in retirement including general redecoration, bathrooms, and kitchens.

Gifting to family accounted for 16% of the money released compared to 14% of a much larger amount in 2022. Spending on holidays was subdued at just 3%. Will Hale, CEO at Key, said:

“The later life lending sector does have some real reasons to be cheerful in 2024. We have already seen a good boost in consumer demand as the new year gets into full swing. We have seen the first shoots of some interesting product innovations that can provide a real boost for market growth, whilst addressing unmet customer needs. The variety of products that offer repayment options has increased and these provide the potential for customers to both release more cash in order to meet all their needs and to reduce their cost of borrowing – two things that have been barriers to volumes post 2022.

In addition, towards the end of 2023 we saw gilt rates drop to below 4%, and as base rates drop in 2024, I am confident this will breathe new life into the core equity release market. We should feel confident the later life lending market is set for a return to growth in 2024.”

Key’s Market Monitor, which analyses data reflecting the whole market, shows plan sales and the total value of new equity released fell in every region. The smallest drop in plan sales was in Scotland which recorded a 29% decrease while London saw a 39% fall which was below the national average.

Scotland also saw the smallest fall in the total value of new equity released at 43% with Yorkshire & The Humber, the North West, Northern Ireland, the East Midlands, and West Midlands recording falls below the national average. The South East, London and the South West accounted for more than half (54%) of the total value of new equity released during the year.

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