Figures from the Equity Release Council (ERC) revealed there were 14,216 borrowers in the market in Q1, with 55% taking a drawdown plan.
A third of active borrowers took out new plans and 12% agreed further advances on existing plans.
New borrowers turning to drawdowns
There was an 11% fall in new customer numbers when compared to Q4 2023, with 4,698 during the period.
This was also 31% down on last year.
The ERC said this was likely because borrowers were expecting an interest rate cut before the summer and were waiting to see if conditions improved.
This was also evident in the popularity of drawdowns among new borrowers, with the highest share in Q1 activity recorded since 2022. Some 45% of new borrowers selected a drawdown in Q2 2022, compared to 56% in Q1 this year.
New drawdown borrowers tend to take out larger loans than lump sum customers, with an average loan of £114,911 for drawdown borrowers compared to £103,492 for lump sum borrowers.
Borrowers took just £59,660 of their loan upfront, and the ERC said flexible product features made it possible for them to benefit from lower rates if they withdrew more money at a later date.
The average amount of money taken upfront was 4% lower than the previous quarter, which the ERC said was down to higher rates. At the same time, borrowers increased their reserved facility by 35% to £55,251 quarter-on-quarter.
New drawdown borrowers took just 52% of their loan upfront and held the rest in reserve, compared to an average of 66% being taken upfront over 2017-22.
More existing borrowers dip into reserves
There was a 6% rise in returning drawdown borrowers taking money from their reserves, with 7,753 making use of the available cash.
Borrowers withdrew an average of £12,822, a 9% rise on the money they released in Q4 2023. This was down by 4% on the same period last year, however.
Some 1,765 further advances were agreed in Q1. The ERC suggested borrowers were confident in extending their plans because of the long-term growth of property prices giving them the ability to withdraw money and stay within loan-to-value (LTV) limits.
Ongoing challenges in the property market
David Burrowes, chair of the ERC, said: “The Q1 2024 data highlights the ongoing challenges facing the residential property market in the UK, as the nation waits to see what happens next with interest rates and the health of the economy.
“In our market, consumer confidence is holding up well among people with existing plans, who are not shy of making use of drawdown facilities or exploring further advances. New customer numbers are lower than last year, with feedback from the market suggesting that older homeowners are adopting a more cautious approach to borrowing, as there are hopes of interest rate reductions in the near future.”
He added: “The flexibilities offered by modern lending products are becoming increasingly popular as customers use them to manage their borrowing in a way that best meets their individual circumstances. New customers are choosing drawdown plans with smaller initial advances, while existing customers are being more modest about their borrowing compared to the start of last year.
“As we look to the rest of 2024, we are confident that the green shoots that we are starting to see will germinate and the market will return to growth. Structural drivers of the later life lending sector are only due to intensify over the coming years, and council members are ready to support clients as they make sustainable long-term choices about their finances.”
Lorna Shah, managing director at Legal and General Retail Retirement, said: “The latest statistics paint a clear picture of the current later life lending market. While market conditions have made some new customers more cautious of borrowing, existing customers have confidently made use of their drawdown facilities.
“We expect that equity release will be considered as more of a mainstream product in the future, alongside pensions, as customers look for more holistic options to fund their retirement goals. After all, property wealth remains a significant financial asset for many homeowners. As a lender, we always want to support customers and recognise their individual circumstances, which is why we’re always looking to innovate and listen to adviser feedback, to ensure the best outcomes for everyone.”
