Equity release market beginning to show signs of recovery as interest rates improve

Increases in both new customers and total lending during Q3 have seen the equity release market experience growth for the first time in 12 months, according to the latest data released by the Equity Release Council.

Related topics:  Finance,  Equity Release
Property | Reporter
30th October 2023
"These figures suggest the process of building back is slowly underway in the equity release market, after a period where higher interest rates have prompted consumers and industry to reach for the ‘reset’ button"
- David Burrowes - Equity Release Council

Data from ERC shows that a total of 17,078 new and returning customers used equity-release products – primarily lifetime mortgages – between July and September 2023 to unlock wealth from their homes.

The number of active customers this quarter was very slightly up from 17,028 in Q2, although it remained down 33% year-on-year from 25,519 in Q3 2022

A total of £716m was unlocked by new and returning customers between July and September. This represents an increase of 8% on the previous quarter (£663m) and meant Q3 was the busiest quarter of 2023 so far for lending.

Currently, lending activity of c.£700m per quarter is broadly in line with levels last seen during the first half of 2017, excluding the first lockdown during the Covid-19 pandemic.

Trends among new customers

The number of new plans agreed during Q3 2023 was 7,379. This was up by 10% from 6,682 in the previous quarter, indicating a slight improvement in consumer confidence and market conditions, although the total remained 45% lower than Q3 2022 which saw 13,452 new plans.

New customers were broadly split when it comes to product choice: 53% opted for drawdown lifetime mortgages, taking an initial withdrawal up-front with more held in reserve for future use, while 47% of customers opted for a single lump sum. This reversed the trend in Q3 2022 when the equivalent split was 48% drawdown and 52% lump sum.

Trends among returning customers

With interest rates fixed or capped at the point of withdrawal for products which meet Council standards, the number of drawdown customers making new withdrawals from existing loans rose by 8% in Q3 2023 compared to Q2 2023, from 7,817 to 8,466.

While returning drawdown numbers are still 12% down year-on-year, this part of the market has been the least impacted by the slowdown. This is likely due to existing customers being able to limit the impact of higher interest rates by borrowing incrementally, with their existing borrowing protected from rising rates.

David Burrowes, Chair of the Equity Release Council, said: “These figures suggest the process of building back is slowly underway in the equity release market, after a period where higher interest rates have prompted consumers and industry to reach for the ‘reset’ button.

“With customers starting to venture back, the market is at the start of a gradual but fragile road to recovery, with pent-up demand likely to emerge in future years as the interest rate cycle begins to turn again.

“While the clock has been wound back on lending activity and loan sizes, product innovation has increased the flexibility of lifetime mortgages.

“New customers of plans that meet our high consumer standards can use voluntary repayments to keep their costs in check while existing customers are free to take extra instalments of money as they need it, safe in the knowledge their previous borrowing is fully insulated from rate rises.

“Looking ahead, we must be wholly committed as an industry to putting equity release in its proper context as one of a range of later life lending options and putting property wealth in its proper context at the heart of every retirement planning conversation.”

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