According to Q2 market figures from the Equity Release Council (ERC), lending between April and June was down five per cent on the previous quarter when £699m was provided to borrowers.
There were 17,028 new and returning customers served by the market in Q2. While the number of active customers fell 29 per cent annually, this was up by two per cent on the previous quarter.
Kay Westgarth, sales director at Standard Life Home Finance, said although April was the quietest month of the year, the pick-up in June was encouraging. She added: “This bodes well for the remainder of 2023 as the number of products on the market are starting to rise, and with pressures on loan to values easing, we will be able to support more customers.”
Will Hale, CEO at Key, said the figures were similar to its own market monitor which suggested activity was down.
He added: “That said, there are early signs that the market is starting to gain positive momentum and that customers are becoming more accepting of the new normal.
“Rates are higher than they have been for several years but the same is true of residential mortgages. Indeed, the difference in average rates for lifetime mortgages and standard two-year or five-year fixed rate mortgages is narrower than ever before.
“Looking to H2 2023, I firmly believe that we will see a more buoyant market based on increased customer demand. How we service this demand will be vital and I envisage more innovation in products and advice propositions to ensure that good customer outcomes are achieved.”
New borrower trends
Some 6,682 new plans were taken out in Q2, which was one per cent lower than Q1 and 46 per cent down on the same period last year. There was a drop in the number of new borrowers from March to April, when the total fell from 2,384 to 2,004. Levels picked back up in May and June to 2,117 and 2,462 respectively.
The ERC said this suggested interest and demand in equity release was starting to return.
Some 52 per cent of new equity release borrowers chose a drawdown lifetime mortgage while 48 per cent went for a single lump sum. This was compared to 45 per cent taking a drawdown and 55 per cent going for a lump sum last year.
The ERC said higher interest rates and lower loan to value (LTV) limits had affected customer loan sizes. On average, borrowers are taking out £59,294 on the first withdrawal from a new drawdown plan which is 35 per cent down on the £90,646 they withdrew during Q2 last year.
The ERC also noted this was the smallest loan size seen since Q1 2017.
The total loan size of drawdown borrowers dropped by 21 per cent annually from £137,480 to £108,645, and customers are taking 55 per cent of this sum upfront and saving the rest for later. This is a change from borrowers taking 65 per cent upfront last year.
The average lump sum decreased by 29 per cent annually to £94,266, which was the lowest amount since Q2 2019.
Returning borrowers enjoy house price rises
The number of returning drawdown borrowers dropped by 16 per cent annually to 7,817.
Returning equity release customers borrowed seven per cent less compared to Q1 as they took £12,468 from their reserves. Compared to last year, this was a drop of eight per cent.
The number of further advances agreed on existing plans rose 15 per cent on a quarterly basis to 2,529, which was also a 19 per cent increase on last year.
The ERC said this could be because existing borrowers needed more capital to fund their lifestyle and were making the most of house price gains.
Borrower caution
David Burrowes, chair of the Equity Release Council, said higher interest rates had an impact on demand, but the gap between mainstream residential and lifetime mortgage pricing was starting to narrow.
He added: “Equity release remains competitive and has lost none of the extra protections that have been added in recent years.
“Innovations in equity release can come into their own in a higher rate environment, with drawdowns allowing customers to take what they need in the short term and make extra withdrawals in future if their circumstances change and interest rates fall. Optional repayments also give people freedom to keep their borrowing under control by limiting the effect of compound interest.
“The socio-economic factors for releasing equity remain. People are living longer, they are not saving enough for retirement and they want to help themselves and their loved ones to live more comfortable lives.”
Burrowes noted the rise in new customer activity, with June being the busiest month of the year so far, but said it was too early to say it was the start of a recovery, adding: “There is cause for cautious optimism and we remain confident in the strength of the market.”
Craig Brown, CEO of Legal and General Home Finance, said the figures reflected a cautious approach among borrowers, with people turning to drawdown products instead of a lump sum.
Paul Glynn, CEO of Air, said: “We are seeing green shoots but they will not grow without considered effort and input from across the industry. Whether it is lenders looking to innovate or advisers considering how they use tools to adapt their systems and processes to provide customers with good outcomes, there is a lot of work still to do – especially having hit the Consumer Duty deadline.
“Key to this will be to build customer confidence and help them to understand that even in a higher interest rate environment, modern later life lending products can be the right solution to the challenges they are facing.”
