New figures out this week from the Equity Release Council revealed that the first six months of the year were the “quietest” H1 since 2016, with a 45 per cent plunge in new equity release borrowers over the period.
This was accompanied by a drop in the average amounts withdrawn and the average loan-to-value (LTV).
Intermediaries told Mortgage Solutions that interest from clients was changing, moving away from the aspirational reasons for taking out plans in recent years and towards meeting their own immediate needs.
Equity release drivers are changing
Gareth Davies, director of South Coast Mortgage Services, said that while his firm had not seen a drop in enquiry levels for equity release deals, the reasons behind those enquiries have changed.
Back when rates were lower, Davies said interest in equity release tended to be driven by lifestyle needs, such as holidays, home improvements or the desire to gift money to loved ones.
This has changed though. “This year it has definitely been more needs-based, clearing an interest-only mortgage for example or needing to reduce outgoings because their SVR payments have gone too high,” he explained.
Simon Bridgland, director of Release Freedom, agreed that enquiries this year have mainly been needs-based rather than aspirational. He noted that rising rates on traditional mortgages had caused would-be buyers to shelve their purchasing plans, and this had meant that fewer older relatives were looking to gift them money through equity release.
However, he noted that lately there has been a jump in enquiries, particularly among those looking to release funds for their own requirements, such as those with interest-only deals coming to an end.
The start of this year saw a “sizeable drop” in enquiries, said Rowan Frayling, managing director of J Finance, but there has been an increase in interest lately.
Frayling was another to report less aspirational releases, such as taking money for holidays and renovations, with borrowers instead looking to assist family or reduce an existing mortgage balance.
Getting client heads around equity release
Equity release products have “continued to evolve for the better”, argued Davies, to the point that there are now many similarities to standard residential mortgages.
This is particularly true of aspects like redemption penalties, which “helps the public get their head around the concept more easily,” he continued.
Frayling said that borrowers were “adjusting” to the rates now on offer on equity release, which are typically in the six to eight per cent range, “rather than the extreme lows of two to four per cent we saw a few years back”.
Frayling also pointed to additional features helping to make the products more attractive, such as the ability to pay the interest or redemption penalties which are fixed for a set period.
Bridgland praised lenders for being more creative, noting that “innovation is key” for the equity release market going forward. He picked out Livemore and More2Life as two providers who have led the way “by being in tune with brokers and clients”.
He noted that while rates on products remain “a little high”, other aspects of deals help to present them in a more attractive light, such as short redemption periods and less restrictive terms for interest-only clients.
We need more from providers
Samantha Bickford, mortgage and equity release specialist at Clarity Wealth Management, said that there was still plenty of choice in the market, but with products priced so similarly it’s often those additional features or flexibility of the product that makes it stand out.
She added that the market needed more innovation from providers.
She said: “Providers want to meet with advisers to sell their USPs but they are all very similar to one another. If a new lender, or current lender brought a product to the market which offers unique features on types of property they will lend on, greater flexibility on ERCs or higher loan to values, I feel this provides more competition in the market and offers more options to our clients.”
The role of advice
Referring specifically to equity release is likely to “dampen take-up” suggested Bridgland, who said that it is better to talk more broadly of later life mortgages.
“Brokers who encompass all residential mortgage types, offering non-siloed advice, will help boost confidence for clients,” he continued.
Davies suggested that consideration of equity release for later life clients was becoming more important even before the introduction of the Consumer Duty, but with the new requirements in place, it’s more vital than ever to review the benefits of equity release against other options.
“This is where we’re able to help people in the industry who do not advise on these products themselves,” he continued.
Frayling also made the point that it’s important for those advisers who do not handle such later life lending options to find ways to do so.
He said: “We work with a number of mortgage advisers who do not specialise in later-life lending to ensure they can still offer the full spectrum of solutions to their clients.”
