Equity Release Councils Spring Report
In this article we look at the latest equity news from the Equity Release Council’s Spring 2023 market report.
Spring 2023 report highlights
- Property wealth has grown by 8% - the equivalent of £228,300 per household
- Mortgage debt hits record levels of £1.6 trillion
- Customers save an estimated £116m in interest as voluntary repayments increase by 48%
- Average equity release interest rates have fallen over five successive months
- Lifetime mortgages continue to offer great flexibility with product availability starting to recover
Here’s a closer look at what the Equity Release Council’s (ERC) latest report had to say:
UK property wealth on the rise
Despite there being a dip in prices towards the end of the year, the UK saw an 8% increase in property wealth throughout 2022. With £5.6 trillion of net property wealth, the average equity per household now stands at £228,300.
However, that’s only half the story. Despite being a buoyant year for property wealth, mortgage dept also increased by 4% to £1.6 trillion, suggesting a greater requirement for later life lending products in years to come.
Tough times for pensioners and the cost of retirement
The 2023 equity release spring report also highlighted a rise of 20% to the minimum cost of retirement, according to a recent update published by the Pensions and Lifetime Savings Association. According to the PLSA, as a result of high inflation, the cost of a minimum retirement lifestyle grew from £10,900 to £12,800, with those on the lowest incomes hit hardest.
The report went on to say that by releasing equity, the average pensioner could raise their standard of living to support a moderate lifestyle for 12 years.
Yet with only £6.2bn equity released, only a tiny fraction of homeowners have turned to their property to address their financial challenges.
Equity release offers more flexibility and control
Latest ERC figures for the first quarter of 2023 show one of the biggest dips in equity release activity, attributed to the unstable market towards the end of last year and the subsequent rise in interest rates.
However, with the consistent drop in rates and a return customer confidence, recovery looks to be well on its way. And with mortgage debt on the up and an increase in the cost of retirement, the requirement for equity release and later life lending can only grow.
So its welcome news to hear about the flexibility equity release products now provide, allowing customers to better manage their finances. Testament to this is the estimated £116 million 90,000 equity release customers will save in future interest costs having made penalty free part repayments over the last year. The number of people making repayments rose by a whopping 48% in 2022, a direct result of the ERCs move to make penalty free partial repayments a mandatory feature on all new plans.
The ERC also reports that in 2023:
- 96% of plans come with fixed early repayment charges which typically decrease to 0% over time
- 72% of plans provide downsizing protection giving customers the freedom to repay the loan if they move to smaller property
- 57% of products provide drawdown facilities so you only use (and pay interest) on the cash you need
- 35% of products are now potentially suitable for sheltered or age-restricted property
- 32% of plans offer inheritance protection so you can secure an inheritance for family
However, although these enhancements are designed to provide greater flexibility, control and protection for homeowners, it would appear that customers are still confused.
Research conducted in April 2023 by Over50choices found that almost 80% of the 2,000 UK adults surveyed were uncertain whether you could get into negative equity with equity release, whilst a further 63% weren’t sure if you could remain living in your home.
So although advancements are being made in product design, it would appear that more needs to be done to promote these features.
Later life lending to play a key part in retirement planning
Even though equity release sales have dipped in recent months, the requirement for additional income in later life is greater than ever. Although it seems unlikely that interest rates will fall back to halcyon days of 3%, customer interest is growing as rates reduce.
Whilst it’s understandable that higher interest rates have made homeowners more cautious, their requirements for additional income remain and so too will the demand for later land lending.
As ‘Chair of the Equity Release Council’ David Burrows said, “The economic uncertainty gripping the UK makes it even more likely that people will need to call on later life lending products for financial support and security in future. A nation where so many pensioners struggle to afford a moderate standard of living simply cannot ignore the potential for property wealth to bridge the gap.”
For more information on releasing equity from your home, read our guide to equity release.
Alternatively, if you would like to see how much money you could release, use our calculator.