The latest market monitor report from Mortgage Advice Bureau Later Life found that in the first half of 2023 around a quarter (24 per cent) of those taking out an equity release plan used the funds to repay their mortgages. That’s down from 40 per cent in the first half of last year.
The broker suggested this was down to lenders restricting loan-to-values (LTV) to reflect the conditions of the housing market, which has meant some would-be borrowers have been unable to access the financing they need.
The report also found that these LTV limits may have discouraged some borrowers from refinancing their existing release plans, with the proportion remortgaging dropping from 19 per cent to 14 per cent.
Priorities are changing
The Mortgage Advice Bureau report found that the priorities for equity release borrowers are changing, with a notable jump in those looking to offer gifts to loved ones. This accounted for 16 per cent of cases, up from 12 per cent in the first half of last year.
Elsewhere, there has been a significant drop in the proportion of borrowers using the funds to repay unsecured debt, from nine per cent to five per cent. The broker suggested this was down to people looking to prioritise other forms of spending, with advisers pushing a more cautious approach to borrowing and debt management.
Instead a big priority for many equity release customers has been home improvements. The report found that 45 per cent of equity release plans are fully or partially used for home improvements.
However, the actual expenditure on such projects makes up a smaller portion at about 12 per cent.
The firm said this was down to factors such as older borrowers looking to ‘age proof’ their properties by making necessary improvements, but the combination of higher interest rates and lower LTVs meaning the amounts released had dropped to an average of £14,082, compared with £17,968 last year.
Market will improve
Steve Humphries, proposition director of mortgages at Mortgage Advice Bureau Later Life, said that while the later life lending market faced a tough time at the beginning of the year, the signs point to a stronger second half of the year.
He said that as confidence gradually improves, more will consider their options for later life lending and how they can use equity release.
“The industry is poised to embrace this shift, and I have confidence that we’ll witness a surge in product innovation. This will enable advisers to serve a more diverse range of customers and ensure that the remaining half of 2023 resembles previous years and – most importantly – a return to a healthier market,” he concluded.
Figures from the Equity Release Council found that equity release lending in the second quarter dropped to a seven-year quarterly low.
