"Higher interest rates, lower LTVs and fewer products available, has meant that advisers have understandably adopted a prudent approach when helping customers consider their options."
While the mini-budget in September 2022 saw a slow down in the later life lending market in Q4, strong performance across the rest of the year saw the market hit a record high of £5.58 billion in new lending, according to new data from Key Later Life Finance.
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 £5.58 billion. Once borrowing by existing customers via drawdown and further advances is included, total borrowing hit £6.3 billion.
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.
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.
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.
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.
Customers focus on their finances as interest rates and inflation rises
Around £3.3 billion of the property wealth released in the year was used to repay unsecured or secured debt. New customers focused on strengthening their finances as rising interest rates and inflation ate into retirement budgets.
31% used it to repay unsecured debts while 27% used it to clear mortgages and 15% remortgaged existing equity release plans.
The number of customers using some of their equity release to fund holidays doubled to 14% from 7% in the previous year, as 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.
Will Hale, CEO at Key, said: “While hitting a record £5.58 billion 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 LTVs and fewer products available, has meant that advisers have understandably adopted a prudent approach when helping customers consider their options.
“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 £3.3 billion 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 environment.
“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. 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. 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.”
