Your first reaction to that might be, ‘Let us finish this year first’, or ‘Let us enjoy the holidays’ and then we’ll think about 2023.
However, I suspect most advisers and firm owners are constantly considering how they can improve their performance and make the most of the sector, and indeed planning for a variety of outcomes.
The good stuff
For those active in our sector, I think there is much to be positive about, and those who have their processes and systems right, those who have the right marketing mix, those who understand what drives customer demand in this space, are likely to hit the ground running.
For what it’s worth, here’s my take on some of the key issues I believe will be at play in 2023.
First up, customer numbers. In the past few years, we have seen the level of borrowing increase, and this has rightly been celebrated in the sector. Lest we forget, it wasn’t too long ago we were hanging out the bunting for a £1bn a year equity release market.
We are way beyond that now, but it should be remembered that a lot of this has been down to larger loan sizes, not necessarily significantly more customers taking out equity release plans.
My belief is that this will change in 2023, and we’ll see an increase in customer numbers. Somewhat ironically this may result in the total amount of borrowing going down a little, or perhaps (more likely) simply staying in line with what has been achieved in 2022.
The reason for that is I think we’ll see a drop in loan amounts and that has much to do with why customers take equity release products over other types of borrowing. We’ve already seen this trend in recent months, but there has definitely been a shift in the underlying reasons why customers want/need equity release.
Indeed, you could say this for all later life borrowing.
The economy influencing decisions
Where once there were four or five reasons for opting for later life products, now there are one or two. They tend to be to pay off debt including mortgages, or to support family members in getting on the ladder/paying off their debt, and we’re seeing less usage for ‘lifestyle’ reasons – buying a car, taking a holiday, etc.
That chimes with the economic situation of many more people in the UK and will play a significant role in 2023.
The point about helping family is particularly pertinent in a first charge mortgage market where rates have risen, affordability criteria has got a lot tighter, and there has been an impact on the maximum loans achievable, specifically for first-time buyers.
We should all expect to see more parents/grandparents turning into ‘Bank of Mum and Dad’ figures and a greater willingness to access the equity in their home(s) in order to help fund these deposits or purchases, particularly if they are making up a loan shortfall which has reared its head in recent months.
In terms of rates, we’ve obviously seen rises in the later life/equity release space, however much like in the wider mortgage market this has slowed down and indeed gone into reverse, even as (for example) Bank Base Rate has continued to climb.
Inflation is predicted to keep on falling, this will continue to put downward pressure on rates, and I fully expect this to carry on through 2023 with a raft of more competitive products coming to the fore.
Clearly, we have moved on from rates beginning with a three, but historically lifetime mortgages for example, are still very competitive and given even though equity release is not a rate-driven product, I think there will be further good news throughout the year in terms of rates continuing to come down, albeit slowly.
Overall, as mentioned, there is much to look forward to. There is no doubting that we have made a significant breakthrough in homeowner mindset in recent years, with many more people willing to access their property as an asset where required.
Given all the economic fundamentals at present, my belief is that demand to do this will continue to grow, and advisers are clearly in a strong position to deliver the best possible outcomes for their clients throughout the next year and beyond.
On that note, may I wish all readers of Mortgage Solutions a restful holiday break from which you’ll be raring to go once January comes.
