The Equity Release Council (ERC) Autumn Market Report said this made it the quietest start to the year for new customer numbers since 2016. However, there were signs of recovery towards the end of the period, as the sales of new plans reached their highest point for the year so far in June.
There were 13,448 new plans in H1, down from 24,659 last year.
The average lump sum withdrawn by new lifetime mortgage borrowers also fell from an average of £132,085 to £98,407. Meanwhile, the average loan to value (LTV) was 25 per cent, compared to 31 per cent a year earlier.
This is despite the average home having £222,526 in available equity.
The ERC said this happened as borrowers, providers and advisers adjusted their expectations in light of the higher interest rate environment.
Its report showed that the average rate on a lump sum lifetime mortgage had risen from four per cent in the first half of 2022 to 6.66 per cent this year.
The average new drawdown borrower withdrew a smaller amount of money, falling from £441,270 to £428,539. This also accounted for a smaller percentage of their overall housing wealth as the average LTV declined from 30 per cent to 24 per cent.
Steady returning customer activity
The ERC found that activity was healthier among returning customers, which it said was due to borrowers being protected from rising interest rates.
There were 15,549 returning drawdown borrowers in the first half of the year, only slightly down from 16,719 in 2022.
Further advance borrower numbers were relatively flat at 4,722 this year compared to 4,771 last year.
Over three quarters of customers choosing a further advance opted for a lump sum, up from 52 per cent last year. The ERC said this was likely a sign of them protecting themselves from higher interest rates.
The average lump sum dropped from £31,322 to £20,725 year-on-year, while the average drawdown declined slightly from 13,280 to £12,904.
Capital repayments hit record high
Borrowers made the most of the penalty-free partial repayment capability and made average repayments of £2,527 in H1.
The organisation calculated that if a new customer with a loan of £100,000 made this repayment every year for 10 years, they would reduce borrowing costs by £37,845. Over a 15-year period, this would save them £69,305.
Overall, the ERC noted a total average of £21bn in regular and one-off capital repayments across the lifetime and wider mortgage market each quarter since Q4 2022. This was up from an average of £17bn every quarter before the pandemic.
Again, this was attributed to the higher rate market.
The ERC said the margin between the average lifetime mortgage rate and the typical residential mortgage rate had narrowed in recent months.
In 2013, the average lifetime mortgage rate was three per cent higher than a standard mortgage and this shrunk to 1.5 per cent for most of 2022. Over summer 2023, the differential reduced to a one per cent gap compared to the average five-year rate, and 0.5 per cent compared to two-year rates.
The organisation said there was also a recovery in the level of product availability with 250 plans available, up from 163 at the start of this year. Most of the products offer fixed early repayment charges.
A strong resolve
David Burrowes, chair of the ERC, said: “The equity release market has shown a strong resolve to keep an important lifeline open to customers during a challenging period for the UK economy. People are taking smaller loans and a smaller percentage of their available equity. However, the stark outlook for people’s pension prospects means property wealth will remain a vital part of the equation to avoid a cost-of-retirement crisis.
“While mortgage pricing has jumped across the board, lifetime mortgage rates have weathered the storm better than some residential mortgages.
“Even before the current cycle of rising interest rates, many homeowners were facing the reality of carrying mortgage debt into later life. That is even more likely now, which is why we must double down on our work with industry and regulators to ensure all homeowners understand all their options and make the right informed choices.”
Market reset
Stephen Lowe, group communications director at retirement specialist Just Group, said the report indicated that the market had gone through a “major reset” which was not surprising considering rising interest rates.
Lowe added: “Changes on that scale are inevitably going to make people more cautious, particularly when they are making long-term decisions. Against that backdrop, it was natural to see customer numbers dipping and the amount borrowed being reined in.”
He questioned whether the market had hit a “stable level from which it can grow”.
Lowe said: “Looking longer-term, we think that there are important fundamentals that will help drive business growth. The council highlights the fact that there are large numbers of people – government figures estimate 53 per cent – due to retire by 2030 whose income is likely to fall short of the ‘moderate’ retirement living standard calculated by the PLSA.
“Accessing the wealth locked up in a home in later life can help provide an income boost to this group.”
Later life mortgage flexibility
Craig Brown, CEO of Legal and General Home Finance, said: “The current climate has created a degree of caution among borrowers but, thankfully, the lifetime mortgage market has evolved and now offers greater flexibility, so that homeowners can access the value tied up in property, while managing repayments over the life of their loan.”
David Stevens, director of savings and retirement at LV=, said: “With the backdrop of rising interest rates and reduced savings, consumers are much more considered about how they could use equity release products to better suit their needs in later life.
“The opportunity for the industry is to continue developing products which offer useful options to customers, providing flexibility for the mortgage to adapt to changes in circumstances and lifestyle. This is an important element of enabling equity release to be seen as a foundation consideration in retirement planning for the many.”
“The role of advisers in supporting their clients through making these choices is incredibly valuable to help customers decide with confidence what is right for them and addressing the worries they may have,” Stevens added.
