According to the Equity Release Council’s (ERC’s) figures for Q4 and the full year ending 2022, the equity release market saw its highest rate of growth since 2018 last year.
Some 93,421 customers were served, a 23 per cent annual rise, while the total lending amount was up by 29 per cent year-on-year.
David Burrowes, chairman of the Equity Release Council, said: “We saw a glimpse of the equity release market’s potential in 2022 as it returned to its previous growth path with a growing customer base making use of improved products and added protections.
“In a climate where retirement incomes have to stretch further for longer, property wealth is as important to many people’s financial wellbeing as their pension.”
The final quarter
In Q4, the equity release market saw 20,957 new and returning borrowers, which was down on the record number of 25,591 in the previous quarter. On an annual basis, this was a nominal three per cent uptick on the same quarter a year ago.
Some £1.36bn was borrowed during the period, some £200m more than a year before. However, the amount of property wealth unlocked was down by a fifth compared to Q3. The ERC said this ran counter to usual market trends, which usually saw Q4 as the busiest period of the year.
Quiet end to the year
Over the year, 49,285 new plans were agreed, an increase of a fifth on the year before. This was also a new high on the previous record of 46,396 new plans agreed in 2018.
The number of new plans agreed in Q4 fell 17 per cent to 11,174 following market disruption after the mini Budget.
The busiest month of Q4 was October, in which 4,736 new plans were taken out resulting from pipeline cases before the mini Budget. December was the quietest month, with just 2,074 new plans agreed. The ERC said the final month of the year was not just the quietest of the period, but also the most subdued since before the pandemic.
Burrowes said: “Factors outside the industry’s control meant 2022 ended on an unusually quiet note in December, after the mini-Budget fuelled rate rises and tightening criteria. However, releasing equity is not a choice to make on a whim, and we are encouraged by signs that customers are pausing to assess their options.
“While some consumers may delay a decision about unlocking property wealth in 2023, many people will find that releasing equity is an appealing and essential step to move ahead with their lives and support their families’ needs.”
Lump sum popularity
Over the year, 52 per cent of new borrowers went for lump sum plans, up from 43 per cent in 2021. The ERC suggested this could be down to borrowers reaching the end of their mortgage and looking to prevent repossession by lowering their monthly payments.
In Q4, more than half of new borrowers opted for lump sum lifetime mortgages while loan sizes for both this type of product and drawdown lifetime mortgages fell.
The average lump sum plan was £128,832, a four per cent drop on Q3, while the average drawdown plan fell six per cent to £82,643.
Returning borrower activity
Over 2022, the number of returning drawdown borrowers rose by 16 per cent annually, while demand for further advances among returning borrowers rose by 86 per cent.
Further advances made up nine per cent of borrower activity in 2022, up from a six per cent share in 2021.
In Q4, 7,071 existing borrowers accessed their drawdown facility which was a 27 per cent fall on Q3’s record high. Compared to Q4 2021, the decline was just seven per cent.
The average drawdown per customer came to £14,180 in Q4, a six per cent decline on the previous year.
Further advance activity rose, with 2,352 customers extending their existing plans. This compared with 1,391 further advances customers in Q4 2021 but was down from 2,419 in Q3 2022.
A long-term solution
Les Pick, director of manufacturing and adviser propositions at More 2 Life, said: “With the number of returning drawdown customers also growing in 2022, it is clear that many borrowers look to this market not as a short-term fix, but a long-term solution that can help them to enjoy their retirement or support younger relatives with their own homeownership ambitions.”
Practicing caution
Equity release professionals said despite growth in 2022, the market should be prepared for borrower caution this year.
Will Hale, CEO at Key Later Life Finance, said: “Increased product flexibility and choice has seen the market double in size since 2017 as more people look to improve their retirement finances with the support of housing equity.
“There is no doubt that borrowers and their advisers have become more cautious – and rightly so in this higher interest rate environment. However, whether the answer is downsizing, a retirement interest-only product, equity release or delaying a decision altogether, specialist advice remains vital in helping customers make the best choice for their individual circumstances.”
Stuart Wilson, chair of Air Club, said due to affordability challenges in the residential mortgage sector, over 55s would turn to the equity release market for support.
Ha added: “However, this is likely to be different from what they may have considered in January 2022 and product flexibilities such as the ability to make ongoing interest repayments become more attractive than ever before.
“While there is no doubt that 2023 will be more challenging for the market, there will be more opportunities for advisers to support customers than ever before. We would anticipate an increase of customers in 2023, but likely borrowing a lower average amount as advisers counsel their clients to control debt if possible.”
