According to the Equity Release Council’s (ERC) latest figures, the year saw 64,448 active customers taking out new places, making use of drawdown reserves or agreeing extensions to existing plans. This is a fall of nearly a third compared to the prior year.
From a new customer perspective, 26,199 new plans were agreed, a fall of nearly half in 2022. Over half moved towards drawdown lifetime mortgages, reversing a trend from a year ago.
The change shows that customers are looking for “additional flexibility” as they manage higher interest rates.
New lump sum customers lowered average loan sizes by over a quarter to £97,878, which is the first time borrowing has gone down before £100,000 since 2019.
New drawdown customers’ reserve facilities came to £43,687, which is in line with 2022 figures, but initial borrowing was down by nearly a third year on year (YOY) to £61,652.
For returning customers, there were 31,329 returning drawdown customers taking funds from their agreed reserves, slightly down from 35,474 in 2022.
In the year as a whole, 7,000 customers agreed extensions to their existing plans, but this is down from 8,662 in 2022.
Nearly 14,000 new and existing customers in Q4 2023
In Q4 2023 specifically, the number of new and returning customers was 13,651, a decrease from 20,597 in Q4 2022, and customers accessed £535m via equity release. This made Q4 the quietest quarter in 2023.
Across all product types, the average amount borrowed by new customers in Q4 was £79,484, a reduction from £106,917 the year prior.
Around 55 per cent of customers agreed a drawdown lifetime mortgage in the period, which is an increase from 47 per cent in the same period last year.
New drawdown customers lowered initial borrowing by a quarter YOY to £62,198. They reserved a further £40,962 for future use, leading to a total loan size of £103,160, a fall from £132,861 a year ago.
New lump sum customers secured £100,978 as a single withdrawal, a fall from 21 per cent compared to the same period last year.
Looking at existing customers, the final quarter saw 7,314 existing drawdown customers going into agreed reserves, a three per cent rise on last year.
The average instalment by a returning drawdown customer came to £11,784, a slight fall from £14,180 in Q4 2022.
There were 1,045 extensions agreed to existing plans, a decrease from 2,352 in Q4 2022.
‘We shouldn’t lose sight of how far the market has matured’
David Burrowes, chair of the ERC, said: “Every corner of the mortgage market saw rising interest rates put the brakes on activity in 2023, and equity release was no exception, with customers and their advisers taking a cautious approach”.
He said that this had led to shrinking loan sizes and fewer people borrowing for aspirational reasons.
Burrowes continued: “While we’ve grown accustomed to stronger demand in recent years, we shouldn’t lose sight of how far the market has matured since activity was last at these levels. New product features and customer protections mean we are well-positioned to serve the inevitable demand that will come as confidence returns.
“Council standards represent the pinnacle of protection for older consumers, which makes it crucial for them to seek out a member firm when exploring their options.”
He noted that it was clear some people were “holding out for future rate cuts”, but without a timeline for how sustained cuts would be, customers would need to “continue to consider what is right for their individual circumstances”.
“Many people are relying on their property wealth to retire in comfort, and we are focused on ensuring they can access it confidently and securely.
“Whether the customer wishes to top up their pension, support their family or manage their borrowing in retirement, today’s products offer more flexible options to help manage costs, with voluntary repayments baked into every new plan.
“Ultimately, it is about choice, and it is vital that people plan carefully for the future and only commit to long-term products after careful consideration, expert advice and consulting with loved ones,” he added.
Challenging market led to later life downturn but ‘grounds for optimism’
Craig Brown, CEO of Legal and General Home Finance, said that the challenging market had led to a “significant downturn in the equity release market, but I’m proud the later life lending industry has shown resilience and pushed forward with innovation”.
He said: “As we look ahead, we anticipate 2024 will bring a renewed interest in lifetime mortgages and more customers will reconsider using property wealth for their financial needs.
“Customers have been cautious, but there are signs that the market is stabilising. House prices are still significantly higher than pre-pandemic figures (18 per cent up from the end of 2019), so property still represents an important asset for homeowners to consider as part of their long-term financial planning.”
Brown noted: “As a lender, we will continue to work with advisers and listen to their feedback to ensure we carry on delivering innovative solutions to give customers as many options as possible when considering their later life lending needs.”
Stephen Lowe, group communications director at retirement specialist Just Group, said: “Looking forward, we have grounds for optimism as the dust settles. Expectations are that the bank rate has close to peaked and lifetime mortgage rates have been falling in recent months. It may take a while for that to show up in lending figures as people remain cautious and wait for the right moment.”
He noted that the “bigger picture is still positive for the market” as homes were a large source of wealth for the over-55s, and the older population will grow significantly in the years to come.
“It is inevitable that more will be looking for ways to supplement their pension income, improve their homes, or gift money to children.
“For those curious to know if equity release can meet their needs, the key message is to seek out high-quality financial advice. It is a complex market given the range of providers, interest rates, options and fees, and professional help is vital to help people understand the alternatives and find the right solution,” Lowe added.
