New lending in the equity release market hits £1.5bn in the third quarter

by | Nov 2, 2022

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New lending in the equity release market hit £1.5bn in the third quarter with the average customer releasing more than £114,000 in property wealth to boost their finances, new data from the UK’s leading equity release adviser Key Later Life Finance shows.

Plan sales grew by 29% in the three months to September 30th to 13,341 compared with the same quarter last year while the value of new equity released rose to £1.525 billion (£1.049bn).  The average amount released in the three months rose to £114,354 with customers in London releasing £261,946 on average. Older homeowner in the South East, South West and West Midlands all released more than £100,000 on average.

Debt Management and Gifting Driving the Market:

Financial management remained the main driver behind the market with almost two thirds (60%) of the amount released being used to manage debt – clear mortgage borrowing (28%), rebroke equity release plan (25%) and repay unsecured borrowing (7%).   Financial prudence born out of the pandemic and heighted by the cost-of-living crisis is encouraging over-55s homeowners to reduce their outgoings.

However, one in five customers (20%) still looked to support their families with an average of £53,503 being gifted to help loved ones onto the property ladder, provide an early inheritance, repay debts and even subsidise university fees.  The bank of mum and dad (Q3 2022 – 11% of equity released) while providing less funding than in 2021 (17% of proceeds) remains open for business and keen to support the wider family – especially with the recent stamp duty changes.

Existing customers benefit from flexibility:

The number of customers remortgaging existing equity release deals continued to rise with 17% making use of the enhanced flexibility of current products compared with 14% in the same period of 2021.   Key estimates the market transacted 1,004 remortgage cases last year but this doubled to 2,268 in Q3 2022 as lower interest rates encouraged customers to rebroke. In Q3 2022, the average customer moved a balance of £115,817 from an interest rate of 5.1% to 4.6%.

At the end of Q3 2022, there were 582 products on the market with all new products offering penalty-free ad hoc capital repayments, 65% including downsizing protection and 63% allowing customers to serve interest.  Interestingly, fixed early repayment charges (ERCs) – which finish in as little as 5 years – now dominate the market (64%) followed by products which offer a choice of fixed or variable (34%).  Just 2% only offer gilt-linked variable ERCs.

As we enter an environment where rates are likely to be higher, these product options and flexibilities are likely to be more important than ever – especially for older people whose financial circumstances may change considerable over their later life.

Will Hale, CEO at Key, said: “While there is no doubt that we did see the market return to more normal post-pandemic trading conditions in Q3 2022, the political and economic turmoil over the last few weeks has, like the mainstream mortgage sector, impacted the rates and LTVs available.   However, the cost-of-living crisis has continued to bite, inflation has hit double digits and older customers moving from fixed-rate mortgage deals to their lenders standard variable rate have been shocked by the difference.

“With over-65 homeowners sitting on an estimated £3 trillion of unmortgaged property wealth and four in five of the customers who progress to speaking to one of our advisers looking to address a financial need there is a clearly a key role for the sector to play in helping older customers navigate through the current economic challenges and still live a fulfilling later life. 

“Modern lifetime mortgages have come a long way in a short period of time so when you consider features such as drawdown, the ability to serve interest and/or the opportunity to  ad hoc capital repayments free of ERCs, there is more opportunity than ever before for customers to carefully manage their borrowing.   The proliferation of fixed early repayment charges which typically disappear after around ten years – although it can be as low as five years – also mean that remortgaging these plans in future is a real option for many people.  

“In these market conditions more than ever before, specialist advice is crucial, Advisers must be prepared to probe and challenge customers on their wants and needs, making them acutely aware of the implications of decisions in both the long and short term and ensure highly personalised recommendations aligned to individual circumstances. All options should be considered as equity release won’t be right for everyone”

Across the regions

Key’s Market Monitor, which analyses data reflecting the whole market, shows plan sales and the total value of new equity released rose in every region. Only London and Scotland recorded single digit increase in plan sales at 4% and 2% respectively although the value of new equity released in both regions rose strongly. Scotland saw a 34% increased and London a 65% rise

The North East experiencing a 127% rise in new equity released followed by Yorkshire & The Humber with a 125% rise. Plan sales in the North East increased 60% and in Yorkshire & The Humber by 52%  The value of the housing market in the South East and London meant those regions accounted for nearly half (46%) of all equity released during the three months despite accounting for less than a third (31%) of plans sold.

The South East recorded the most plan sales, but more plans were sold in the South West, North West, East Midlands, and West Midlands than in London. The table below shows the breakdown across the country:

Region (Q3 2022)Number of plans% change on Q3 2021Total value of new equity released (£ million)% change on Q3 2021
South East3,053Up 20%£414.051Up 59%
South West1,503Up 31%£182.770Up 89%
North West1,491Up 27%£113.712Up 78%
East Midlands1,259Up 37%£113.220Up 88%
West Midlands1,158Up 16%£119.688Up 75%
     London1,117Up 4%£292.520Up 65%
    Yorkshire & The Humber1,004Up 52%£76.984Up 125%
East Anglia737Up 24%£63.683Up 77%
Scotland760Up 2%£54.026Up 34%
Wales588Up 37%£47.372Up 77%
North East505Up 60%£38.675Up 127%
Northern Ireland*166Up 149%£8.915Up 250%
UK13,341Up 29%£1,525.621Up 45%
* = The figures in Northern Ireland are typically volatile due to its small size and low numbers.

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