According to Key’s Market Monitor, consumer confidence has been hard hit by the cost of living crisis and people are adopting a “wait and see attitude”.
New equity release lending was pegged at £1.09bn in H1 2023, down from £2.56bn in the same period last year.
Drawdown lending in the first half of the year fell by 56 per cent year-on-year to £96m.
Further advance lending contracted by 52 per cent over the same period to £42m.
New plans more than half in Q1 2023
New plans have fallen from 25,448 in the first half of last year to 13,194 in the first half of this year.
The average amount released has decreased from £100,468 in the first half of 2022 to £82,475 in H1 this year.
The report said that this was due to lower loan to values being on offer and specialist advisers encouraging “modest borrowing”.
Key noted that the picture on a quarterly basis was more “positive” as the volume of new business fell by 11 per cent from Q1 2023 to Q2 2023 with a nine per cent drop in value and two per cent increase in amount borrowed.
The proportion of drawdown plans taken out came to 67 per cent, which is down from 62 per cent last year. This was attributed to lower LTVs seeing customers opt for lump sum products to “meet their immediate needs”.
The amount reserved decreased 16 per cent year-on-year to £43,987 which it said was due to a “combination of cautious customers, lower LTVs and more modest funder appetite [which created] less room as well as appetite for discretionary spending”.
The report confirmed the proportion of customers rebroking their deals has more than halved from 15 per cent last year to seven per cent this year.
The typical amount rebroked has fallen by nearly a quarter to £99,449.
Product choice has also contracted from 676 in H1 2022 last year to 331 in the same period this year. This is up from 310 plans at the end of Q1 2023.
The average lifetime mortgage rate is 6.3 per cent, with the average two-year fixed rate at 75 per cent LTV at 6.39 per cent and the average five-year fixed rate at the same LTV is 5.96 per cent.
Signs of ‘green shoots’
Will Hale, CEO at Key, said that the later life lending market had had a “tough start to the year” as did all other residential property markets.
However, he said that the indicators suggest the second half of the year should be “stronger than the first half”.
Hale pointed to “green shoots” with the average amount released rising slightly and more being spent on gifting, home improvements and other discretionary expenses between Q1 and Q2.
“As customer confidence starts to improve and lenders step up to the challenge of meeting their demands, we do expect overall borrowing to increase and more people to benefit from accessing their housing equity.
“This could arguably not come at a better time as even with the bumper state pension increases and the Government’s mortgage support measures, the cost-of-living crisis continues to be felt,” he added.
Hale said that looking ahead, modern equity release products had more in-build flexibilities than ever before and rates were “comparable to those on residential mortgages”.
He continued that he expected the “sector to evolve” and this was “vitally important to ensure that we can support underserved areas of the market and I feel confident saying that we will also see some significant product innovation before the end of the year.”
2023 a ‘different beast’
Paul Glynn, CEO of Air, said that 2023 was a “different beast entirely with rising interest rates, concerns about a housing market correction and economic uncertainty having an impact on both lender and consumer confidence”.
However, he said that Q2 2023 figures were more positive as decline was slowing and average amount released increased.
“With the imminent Consumer Duty deadline having taken significant resource for firms to deliver, advisers will now be able to redirect these efforts into ensuring customers receive good outcomes.
“This could arguably not come at a better time as the cost of living crisis as well as the current economic uncertainty has not reduced the need for people to consider using housing equity but actually made the case stronger,” he added.
Glynn continued: “As we acclimatise to the new normal and the innovation that we expect becomes a reality, the later life lending markets proposition will continue to strengthen, and we expect to see a better H2.”
