The Key Equity Release Market Monitor for the first three months of the year showed that there were 6,975 plan sales, down from 12,551 last year. Meanwhile, the value of new equity released totalled £569.9m, down from £1.4bn.
Including borrowing from existing customers, total lending reached £722m in Q1.
Borrowers released £81,703 on average, down on the £111,511 average seen last year.
Key said although demand for equity release was still high, the impact of the mini Budget on interest rates, product availability and loan to value (LTV) limits had resulted in fewer people accessing the wealth in their homes.
The firm predicted that the second quarter and the second half of the year would be stronger due to interest rates falling, an increase in LTVs as well as lenders and products coming back to market.
Kay Westgarth, director of sales at Standard Life Home Finance, said: “This will come as no surprise as the entire property market was shaken by the September Budget Statement and subsequent fallout.”
Westgarth said there would be “pent-up demand” from borrowers who were previously cautious and now being drawn back in by a settled environment.
Paul Glynn, CEO of Air, added: “Looking ahead to Q2, not only are we expecting volumes to increase but an ever-increasing focus on good customer outcomes to become evident as Consumer Duty becomes a reality. Whether it is setting up more formal referral relationships to ensure people can access all relevant later life products or considering whether their business model offers fair value to customers, firms in this market have been carefully considering the impact of this legislation.
“There is more work to be done and we look forward to supporting organisations as they adjust and thrive in the new normal.”
Money used for essentials
More than a third, 34 per cent, of equity released was used to repay mortgages while 15 per cent went towards remortgaging existing plans.
A fifth of people unlocked wealth to pay off unsecured debt, compared with 29 per cent who did the same last year. Key suggested this may be down to people focusing on more immediate needs such as their mortgages, to protect themselves against higher rates.
Some 45 per cent of borrowers used the loan to pay for garden and home improvements, while 11 per cent of the money released went towards essential maintenance such as heating, doors and windows.
The proportion of borrowers using equity release to support family stayed flat at 19 per cent annually, but the share of the value fell from 15 per cent to 13 per cent.
Rise in single women borrowers
The average age of borrowers rose from 70 to 71, and just 27 per cent of borrowers were under 65.
There were five per cent more single women taking out equity release, including those who are divorced or widowed, accounting for 31 per cent of borrowers. Some 54 per cent of borrowers were couples and 15 per cent were men.
Ben Waugh, managing director at More2Life, said: “Whenever we look at the later life market, it is important to take a longer view.
“While over half of customers are couples, that 31 per cent of clients are single women highlights the vital support that property can provide to often underserved demographics.
“Whether it is someone who has found that their retirement income does not meet their needs or that a life event in older age has impacted how much they receive, equity release can help to make things easier for a range of people in a variety of different situations.”
Regional activity
Plan sales and the total value of new equity dropped across every region.
Declines in the number of plans sold were more muted in London and Scotland with falls of 35.3 per cent and 35.7 per cent respectively.
Scotland and Northern Ireland saw the least severe declines in the value of new equity released at 40.2 per cent and 43.7 per cent respectively.
The North East recorded both the largest drop in plans sold and the value of new equity released with annual declines of 57.5 per cent and 69.5 per cent respectively.
The South East saw the highest number of plans sold at 1,526 as well as the highest total value of new equity released at £142.7m.
Innovation and boosted demand
Will Hale, CEO at Key, said: “There is no denying that the first quarter of 2023 was a tough one for the equity release industry. However, as rates start to fall, confidence returns and the product flexibilities are increasingly appreciated, green shoots are returning to the market with April and May seeing more positive volumes.
“Speaking to customers, we know that there is pent up demand as people look to boost retirement income, tackle rising costs and support their families. However, with the support of their adviser, they are being cautious around when to borrow, how much to borrow and considering if there are other options which better support their needs – both in the long and short term.”
Hale said he expected customers to return to the market and make use of the increasingly flexible product features.
He said innovation in the market could also accelerate in an attempt to bridge the gap between borrowers whose needs are not being met because of LTV constraints and affordability barriers with retirement interest-only (RIO) mortgages.
Hale added: “This – to my mind – is what will help to ensure that the remaining quarters of 2023 are more akin to those seen in previous years and we are able to help those customers who may need a later life lending option but have a more diverse set of requirements than we can currently cater for.”
