Equity Release still expanding despite economic headwinds

The equity release market has expanded by 27 per cent to hit a record £5.58 billion of new lending last year, new figures show.

This is despite loans in the final quarter being heavily compromsied by the Liz Truss and Kwasi Kwarteng mini-Budget.

Key Later Life Finance, a prominent equity release player in the market, says plan sales grew last year by 25 per cent to 52,295 compared with the previous year. Key adds that this is despite product sales being hit by rising interest rates in the final three months of the year.

The survey says: “The reduction in the number of products available saw lending volumes plateau following the September mini-Budget. Traditionally, the strongest quarter of the year, the fourth quarter of 2022 saw more modest lending amounts (£101,366) than the third quarter of (£108,180) as customers constrained by lower loan to values were cautious about borrowing.”  

It adds: “Average rates were 5.7% at the end of 2022 compared with 3.07 per cent at the end of 2021 – are expected to change the remortgaging market but product flexibility and shorter early redemption periods will continue to support customers.”  

Key states that some 7,252 borrowers refinanced equity release products last year, compared to 5,295 in 2021. The average sum released rose to £106,806  with regional extremes being £231,694 in London and £60,282 in Northern Ireland.  

Almost a third of borrowers used the cash released to repay unsecured debts, while just over a quarter used it to clear mortgages and one in seven remortgaged existing equity release plans.   

Key chief executive Will Hale says: “While hitting a record £5.58 billion worth of new equity released is a sign of a vibrant market with strong underlying customer demand and a competitive product landscape, there is no denying that the mini-Budget created a different landscape in the fourth quarter and one that has prevailed into the new year.   

“Higher interest rates, lower Loan To Values and fewer products available has meant that advisers have understandably adopted a prudent approach when helping customers consider their options.  

“Balancing both short-term needs and long-term implications, customers and their advisers are sometimes delaying the decision to take equity from the home or taking out less as a lump sum in the knowledge that drawdown facilities and further advances may be accessed in the future as and when required.”