HANGOVER LINGERS BUT EQUITY RELEASE CONFIDENCE GROWS

26 July 2023

• Quarterly sales and total value released figures are ‘more positive’ and Key predicts a surge in product innovation 

•  Frustration over mini-Budget and base rate rises but market drivers remain strong 

•  Key’s 2023 H1 Equity Release Market Monitor shows 48% drop in number of customers and 57% fall in the amount released 

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Customer confidence in the equity release market is starting to improve with the average amount release increasing but the hangover from last year’s mini-Budget and ongoing base rate rises is lingering, the UK’s leading equity release adviser Key Later Life Finance says. 

Key’s Market Monitor highlighted that while the full impact of the economic uncertainty was felt in Q1 2023, the market had started to turn a corner in Q2 2023 with decline slowing.   The number of plans taken out fell just 11% to 6,219 compared to the first three months of the year while the total vale of new releases was only 9% lower at £518 million.  With available loan to values rising, the average amount released by customers increased by 2% to £83,340. 

However, compared to the first half of 2022 – which was the midpoint in a record-breaking year for the market – plan sales in the first half of this year were 48% lower at 13,194 and the total value of new releases dropped 57% to £1.09 billion. The average amount released in the first half of last year was £100,468 (H1 2023: £82,475). 

How the money was used 

With the average standard variable rate on a residential mortgage reaching 7.52% at the end of Q2 2023 but the average rate on equity release plan hitting 6.3% in Q2 2023, many older borrowers looked to use these products as well as the features the boast to manage their essential borrowing.   

Key’s data shows that in H1 2023 32% of the money released was used to repay mortgages, 14% spent on rebroking existing equity release plans and 5% used to pay off unsecured borrowing.   

One in five customers used property wealth to help family while 45% used some or all of the proceeds on home renovations with a particular focus on investments in essential or money saving repairs on their property. 

Around £131 million of the money released – 12% of the total – was spent on home improvements with older homeowners taking the opportunity to deal with nagging issues they had put off and also to age- proof their homes for the long-term. 

Over the last three months to June 2023 while careful well-thought borrowing designed to meet specific needs continued to be the norm, we did see an increase in discretionary borrowing with more people spending on holidays (+7% to 18%). 

Who are the customers? 

 The average age of customers in the first half of 2023 increased by a year to 71 as lower LTVs and higher rates saw younger customers consider a wider range of options. Around one in four customers in the six months were under 65 and they tended to use equity release to manage secure and unsecured debts. 

The proportion of single women taking out equity release hit 30% for the first time since Key started tracking the data in 2011.  More than half (55%) of customers were married or in long-term relationships while 15% were single men. 

Will Hale, CEO at Key, said: “As with all other residential property markets, the later life lending market has had a tough start to the year, but all the indicators suggest that the second half of the year should be stronger than the first half.   Indeed, we’ve started to see some green shoots with the average amount released increasing slightly and more spending on gifting, home improvements and other discretionary expenses in Q2. 

“As customer confidence starts to improve and lenders step up to the challenge of meeting their demands, we do expect overall borrowing to increase and more people to benefit from accessing their housing equity.   This could arguably not come at a better time as even with the bumper state pension increases and the Government’s mortgage support measures, the cost-of-living crisis continues to be felt.  

“Looking to the future, while the modern equity release products available have more in-build flexibilities than ever before – and the rates are comparable to those on residential mortgages – we do expect the sector to evolve.  This is vitally important to ensure that we can support underserved areas of the market and I feel confident saying that we will also see some significant product innovation before the end of the year.” 

Across the regions 

Key’s Market Monitor, which analyses data reflecting the whole market, shows plan sales and the total value of new equity fell in every region.  

However, Scotland saw the smallest drop in the amount of equity released at -36% followed by Northern Ireland on -38%.  Scotland also recorded the smallest fall in the number of plan sales at -28% and moved from 9th out of the 12 regions to 7th on the size of the market while East Anglia dropped from 7th to 9th. 

The South East of England and London markets which tends to be driven by gifting and inheritance tax planning and other discretionary spending remained the largest markets in the UK despite being particularly hard hit  

There is a wealth of information online for customers to educate themselves on later life finances. On Key’s website consumers can use the later life mortgage finder tool to find out further information as well as being able to download a full guide regarding later life finances. www.keylaterlifefinance.co.uk.  

Customers have rated Key Later Life Finance as Excellent with over 17,221 Trustpilot reviews giving the company a rating of 4.8 out of five.