Equity release market heading to £6billion new lending

The equity release market is heading towards £6 billion new lending this year after a record first half which saw the average customer release just over £100,000 in property wealth, new data from the UK’s leading equity release adviser Key Later Life Finance shows.

Plan sales grew by 24.5% in the first six months of the year to 25,448 compared with last year while the value of new equity released rose by 31.7% to £2.556 billion – a record high for new lending and plan sales in a half year.

Average Amount Grows as Interest Rates Remain Below Three-Year High:

The average amount released in the first six months hit £100,468 which is more than £5,000 higher than in 2021 as increased flexibility and house price increases attracted new customers with average interest rates at 3.65%.   These are lower than those recorded three-years ago (3.92%) – despite five Bank of England base rate increases in recent months – the previous two years saw average interest rates at 3.19% in H1 2020 and 3.02% in H1 2021 respectively

This helped existing customers to manage their finances in the face of the cost-of-living squeeze with an additional £876 million taken out in further advances and £200 million taken out in drawdown which was 32% higher than in the same period last year. As an industry it remains vital that topics such as vulnerability, the importance of considering short and long-term implications as well as assessing alternative financial options remain at the forefront of advisers minds.

Customers used drawdown products during the six months to reserve £876 million worth of housing equity for use – a 32% increase from £666 million in H1 2021. The average drawdown customer reserved £52,363 compared with £45,746 last year and took an initial advance of £58,115.

However, customers who took advantage of their drawdown facilities during the last six months took out on average £11,406 which is lower than the £13,765 last year. 

Rebroking Accounts for Almost a Fifth of the Equity Release:

Historically low rates and increased product flexibility are encouraging more customers to remortgage.   The Key Market Monitor has tracked these figures for the first time in this edition and has shown a 79% year on year increase in the number of people remortgaging from 2,130 (H1 2022) to 3,817 (H1 2022).

Accounting nearly a fifth (19%) of all equity released in H1 2021, customers chose to remortgage (av. £130, 808) from 5% (av. initial rate) to 4.2% (average new rate which could save over £16,000 in interest over a ten year period.

Key’s data shows an increase in the number of customers using property wealth for discretionary spending, but debt repayment is the major use of the money released – 57% of customers used some or all of the property wealth to repay debt compared with 53% last year.

Discretionary Spending Returning:

While the management of both secure (40%), unsecure debt (9%) as well as equity release borrowing (15%) continued to drive customer decision, based on their needs rather than desire, we have seen a slight uplift in more discretionary spending as people look to take advantage of the post-pandemic restrictions.  Indeed, we saw the proportion of people spending on holidays increase from 6% (H1 2021) to 12% (H2 2022) – although it still only accounted for 1% of the amount released.

Home and Garden improvements which can be both discretionary (i.e. new kitchen) as well as necessary (i.e. rewiring or wet room) also saw an increase in customers using equity for this reason (33% – H1 2021 to 37% – H1 2022).  However, with the cost of living crisis forefront of peoples minds, the amount spend also remained flat at 7% of the amount released.

Will Hale, CEO at Key, said: “As an industry, the first half of the year has seen the market return to growth as we work to develop and grow to better serve over-55s homeowners.  With the cost-of-living crisis very much at the forefront of people’s minds, we’ve seen a continue focus on the management of both secured and unsecured debt – although the proportion of people who include some discretionary spending has increased.“

“As is to be expected from a maturing market, we are seeing more people choosing to remortgage products and are delighted to be in a position to provide a better understanding to customers. Year on year, we’ve seen a 79% increase in the number of people choosing to move their borrowing to a new equity release product – transferring from an average rate of 5% to 4.2%.

“While pandemic and the cost-of-living crisis has affected all age groups, it is particularly critical in this market that we understand our customers’ needs and recognise their vulnerabilities.  You can only take out equity release with the support of a specialist broker as well as independent legal advice and choosing to start that conversation will help people to find the right option for their individual circumstances now and in the future.”

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 recorded a single digit increase in plan sales at 3.1% although the value of new equity released in the capital rose by 12.2%.

The biggest year on year rise in the total value of new equity released was in the smaller and more volatile Northern Ireland market where the figure trebled, however in comparison to other areas across the UK the Northern Ireland market is still relatively small. Strong rises were seen in Wales where the total value rose by 73% followed by Scotland on 67% and Yorkshire & The Humber on 50%.

Northern Ireland also recorded the biggest year-on-year rise in plan sales at 136.5% with Yorkshire & The Humber seeing growth of nearly 36% followed by Wales and Scotland with a rise of around a third.

The strength of the housing market in the South East and London meant those regions accounted for nearly half (47%) of all equity released during the six months despite accounting for 32% of plans sold.

More plans were sold in the South West and North West than in London. The table below shows the breakdown across the country: