According to the Equity Release Council’s (ERC’s) latest report, this level of equity release lending was driven by new customers, which increased by 12% quarter-on-quarter to 5,240.
The ERC said that the double-digit rise in new customers made the second quarter the busiest quarter for almost a year in the equity release market in terms of total customers and lending.
The report noted that total equity release lending fell by 13% year-on-year and new customers contracted by 22% compared to the same period last year.
The ERC added that total customers came to 14,324, which is 1% up compared to the prior quarter but 16% down year-on-year.
The report stated that returning drawdown customers, who are given a cash reserve when they first take out an equity release loan, were making use of the facility, with a 3% jump year-on-year to 8,051.
Further advance customers were estimated at 1,033, a drop of 59% year-on-year.
Average loan sizes also rose on an annual and quarterly basis, which the ERC said was a “sign of returning customer confidence”.
The average loan size for new lump sum deals was estimated at £110,969, up 18% year-on-year, while new initial drawdown average loan sizes came to £65,453, a rise of 10% annually.
New drawdown reserve facility average loan sizes fell by 7% year-on-year to £45,396, while returning drawdown average loan sizes increased by 6% to £12,097.
Lump sum further advance average loan sizes were estimated at £28,192, up by a quarter year-on-year, while drawdown initial further advances came to £26,641 on average and drawdown further advance reserve facilities were pegged at £8,296.
Around 56% of product choice for new customers was for drawdown products, and lump sum made up the remaining 44%.
Consumer confidence returning to the market
David Burrowes (pictured), chair of the ERC, said that the sector was starting to see “consumer confidence gradually return to the market with increasing numbers of new customers choosing to use their housing equity to support their needs in later life”.
He continued: “The pick-up in activity between the first and second quarters is a welcome reversal of the downward trend seen one year ago. There is a long way to go to unlock the market’s full potential, but there are reassuring signs in these figures that we are turning the corner and acclimatising to this unfamiliar interest rate environment after years of rock-bottom rates.
“Almost 20 years on from their introduction, it’s notable that drawdown products are becoming the majority preference once again. Some of the new flexibilities embedded into the modern market such as fixed early repayment charges [ERCs] are equally designed for the long term and set up so that customers can benefit from years to come.”
Burrowes added that adviser feedback showed that customers were “continuing to find a variety of uses for their property wealth”, with gifting and home improvements both key motivations of Q2 activity, along with everyday income and closing pension shortfalls.
“However, refinancing an existing mortgage, including interest-only loans, continues to rank as the biggest driver of current market activity. The innovative design of modern lifetime mortgages means anyone taking this route will have lots of ways to smooth the transition, not least the freedom to make repayments when they can afford to without the risk of repossession looming over them,” he noted.
Equity release lending shows ‘further signs of recovery’
Richard Pike, chief sales and marketing officer at Phoebus, said that 2024 is “undoubtedly another tough year for the equity release sector”, but the rise in equity release lending shows that the “market is holding its own and hopefully showing further signs of recovery”.
The firm currently services around £20bn in equity release loans in the UK.
He continued: “Market feedback indicates that borrowers are taking more drawdown products rather than a lump sum option. This in itself could be seen as borrowers still being slightly risk-[averse], even while this is a really viable product area that supports funding requirements for people over the age of 55.
“As a whole, advisers are doing a really good job and working in a very reputable manner. This is reflected in the fact that out of 82 complaints to the Financial Ombudsman in Q1, none on the face of it were about mis-selling.”
Pike said that, assuming that economic progress is maintained by the new government, then interest rates should fall in the second half of the year and make “products more attractive to borrowers”.
“On this basis, the market should achieve further steady growth in 2024, and 2025 could be a really positive and pivotal year for later life lending,” he noted.
