Tough times ahead but the foundations are solid

When future generations look back on the political and social upheaval of the last few years, you’d forgive them for forgetting some of the specifics. Will everyone remember which lockdown we could eat Scotch eggs and which we couldn’t see our nans? I have no idea. Or who was health secretary at which point of the pandemic? I’d forgotten them all to be honest until old Matt Hancock popped up in the jungle- anyone else feel like they’re in a fever dream?

However, those who most of us won’t forget are our dear departed dynamic duo - Mrs Truss and Mr Kwarteng. I think, with everything now going on, it is borderline impossible to forget the impact their cameos as political heavyweights has had on the country and people’s finances. Even if Liz Truss was outlasted by a lettuce she will forever be remembered as one of the most impactful, if short lived Prime Ministers in memory. Just not for the right reasons.

The now infamous ‘mini budget’ sent the markets into a tailspin and interest rates climbing. Now, as the dust has settled somewhat and Rishi’s at the wheel, the real pain of this un-costed fiscal punt is being felt by people up and down the country. Mortgage rates have climbed steeply and, in the context of the wider cost of living crisis, this is the last thing that people need.

For equity release, rates have always been higher than their mainstream cousins and so they too have had to shoot up, with averages hovering around 8% as of the start of November. With rates that high, many people will be holding off on taking any lifetime mortgage and enter a holding pattern until rates come back down. And I understand this. But, I think, in these times of unease it’s always wise to take a breath and look through a wider lens so we can understand the complete picture.

For the equity release market as a whole, 2022 will still be strong. In Q3 2022, the Equity Release Council’s Market Report revealed strong growth through the summer months as new customer numbers increased by a third (34%) year-on-year, with total lending to new and returning customers growing by 49%. The market has stayed the course throughout the worst of the pandemic, and clearly Q4 of this year will be different, but we need to look at the trend and not the worst three months.

Now, of course, this will likely stretch into 2023 but there have been some positive signs in the mainstream market when it comes to interest rates. According to MoneyFacts data, the average two-year fixed rate on November 11th was 6.33% (the lowest for a month), falling from 6.46% from the following week when the Bank of England increased the base rate to 3%. So, perhaps things are plateauing and this will be the worst of it. Of course, ‘perhaps’ is the key word here as I have learnt to never second guess the market and political landscape in recent times - but, undoubtedly, lower interest rates are good for consumers.

However, even if the rates do come back down and the industry rebounds, one final fear that still looms large is the possibility of the housing market diving into a substantial decline. These fears have been put around with some vigour in recent weeks, and it feels like 2023 will indeed see a dip in the market. But, again, I would suggest caution before believing everything the doomsayers claim. For one, it’s not that long ago that everyone was bending over backwards to proclaim that the pandemic would crush the housing market - but the opposite happened. Now, the market is cooling for sure - prices are down 1.1% in November - but folks like Rightmove have pointed out that this monthly dip is exactly in line with the average 1.1% that it recorded in the same period during the pre-pandemic years of 2015 to 2019.

Ultimately, it’s impossible to sit here and predict what will happen next year, but I think we need some perspective. Things will be tough is the only prediction I can make for certain, but our industry has built the foundations to see this through and continue to help people secure the retirement they deserve.