Lower interest rates and cost of living pressures appear to have brought borrowers back into the market, but what are the motivations for later life borrowing?
This week, Mortgage Solutions is asking: Has your business seen a rise in later life lending demand and what is driving this activity?
Simon Chalk, MD and later living planner at Laterlivingnow
Business has been good this year so far, as we begin to experience a return to near-normal level of enquiries and applications, but drivers are different to those in previous years.
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We have noticed funds being used less for home improvements and personal lifestyle expenditure than before.
The dominant purpose of funds is for gifting to children with three distinct motivations: to mitigate inheritance tax (IHT) liability and provide early inheritance; assist towards property purchase and extensions to accommodate growing family and financial support through divorce.
We have observed clients taking larger initial sums for this, with a desire to roll up interest rather than establish regular servicing. This is often because they and their families lack disposable income, but also because servicing debt is counterintuitive to IHT mitigation.
The second-ranking purpose for the use of funds is to meet care fees, with a drawdown lifetime mortgage being the most frequently arranged type of equity release product. This is quite natural, with private care fees rising sharply, and will continue as National Insurance hikes feed through to the wage bills of care providers.
Our third most popular reason for releasing equity is to repay existing mortgages, with such clients being the ones most keen to discuss and consider options for servicing the new debt; particularly as they are accustomed to doing so.
Though we walk clients through the full array of product options, it is still rare that an affordability-assessed product meets their needs. In a high-interest rate environment, clients often cannot secure sufficiently large loans, so we find that rolled-up interest lifetime mortgages with capital repayment option is better suited to their budget and need of control.
If the first two months of 2025 are an indication of more to come, we will enjoy a much business year.
Andy Wilson, director of Andy Wilson FS
A combination of the ill-fated autumn 2022 mini Budget, the war in Ukraine and wider cost of living rises caused an immediate and severe effect on my equity release business, as they did across the whole industry. Reduced levels of business followed throughout 2023 and 2024.
It is only since the beginning of 2025 that enquiries have suddenly started to pick up.
Most of these enquiries have fallen into two main areas: using a lifetime mortgage to buy a new home, and paying off maturing interest-only mortgages. A few clients have borrowed to make home improvements and enhance lifestyles, but not many.
However, in general terms, overall loan sizes are lower than pre-2023 levels.
Every client is counselled on their ability and willingness to commit to making interest payments, which does have distinct advantages and cost savings long term.
However, my experience is that few borrowers want to commit to making payments of interest, so the new hybrid products have so far not been popular. With most clients approaching or already in retirement, they prefer flexibility over long-term commitments and a slightly lower interest rate.
I am cautiously optimistic that 2025 will be the turning point for my business levels, and at this stage, I expect to be busier throughout the year. Clients are now accepting that lifetime mortgage rates are unlikely to reduce by much, if at all, and as they get older, they have less time to make use of a plan.
For the advisers in this market who have managed to weather the storm for two years, and despite significant hits to their incomes, I believe the future is looking slightly brighter.
Mark Gregory, founder and CEO at Equity Release Group
Motivation, usage of funds and changes in consumer behaviour have certainly in part been driven by macroeconomic factors and consumer apprehensions, with the cost-of-living crisis at the centre of this.
For that reason, we have seen heightened usage of customers utilising monies released from ‘additional borrowing’, as well as usage for ‘emergency funds’.
Whilst repayments on residential property mortgages increased, ‘gifts to family’ have decreased, suggesting that people are in need of more readily available cash for existing financial needs as opposed to longer term goals.
The ability to optionally repay also continues to be a key motivator – the voluntary payment feature has been a game changer over the past couple of years, given the higher interest rates.
Optimism did return in the second half of last year.
Similar to findings from the ERC we too have seen an increase in demand during Q4 of 2024. We’ve seen a sharp rise in lead figures, by over 30% in comparison to 2023, as well as an increase in applications, which grew by 16% year-on-year. Also, SmartER, which affords people the freedom to research equity release plans in their own time, without feeling any pressure, saw a 3.5% elevation in sales in comparison to 2023 compared to other channels.
Digital developments will inevitably continue to create new opportunities to meet consumer desires, but there’s still a long way to go in terms of product development to widen that comprehension and ensure we meet demands in this higher-rate environment.
The market for later life planning is diverse, with consumers now having to prioritise immediate expenses as opposed to longer-term goals, therefore usage is shifting. However, with accessible, clear and comprehensive information, consumers can feel in control of their situation.
Consumer misunderstandings and misconceptions remain the biggest challenge, therefore educational resources are crucial and would ease that challenge. For instance, there’s little or no media advertising at the moment, therefore awareness of financial options is low.
Accurate online tools are a necessity within the sector and when product development aligns with this, I believe there will be even more appetite and heightened growth in 2025.
