Equity release market starts to improve but mini-Budget hangover lingers: Key

Customer confidence in the equity release market is starting to improve with the average amount release increasing, but the hangover from last year’s mini-Budget and ongoing base rate rises is lingering, according to new figures from Key Later Life Finance.

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 just 11% to 6,219 compared to the first three months of the year while the total value of new releases was only 9% lower at £518 million. With available loan to values 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 £1.09 billion.

With the average standard variable rate on a residential mortgage reaching 7.52% at the end of Q2 2023 but the average rate on equity release plan hitting 6.30%, many older borrowers looked to use these products to manage their essential borrowing.

Key’s data shows that in H1 2023 32% of the money released was used to repay mortgages, 14% spent on rebroking existing equity release plans and 5% 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.

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 months were under 65 and they tended to use equity release to manage secure and unsecured debts.

The proportion of single women taking out equity release hit 30% for the first time since Key started tracking the data in 2011.

Will Hale, 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.

“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.

“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.”

Jim Boyd, CEO of the Equity Release Council, commented: “The shifting landscape in the mortgage market, both from a residential and later-life perspective, has given rise to a more reserved approach from consumers in recent months compared to a record year of lending in 2022. But positivity and opportunity remain in the later-life market and the long term drivers for growth are strong as the UK continues to age.

“Despite the wider economic environment, the interest rate gap between lifetime and residential mortgages is the smallest it’s ever been, and over-55s can benefit from greater protections when accessing equity release products than ever before. This is testament to the evolution of the market in line with changing consumer needs."