Having read the latest Equity Release Council’s quarterly report, the equity release market is clearly going through a challenging period, leading to a 6% drop in total lending from £535m in Q4 2023 to £504m in Q1 2024.
However, I believe whilst new customer activity has taken a dip, there are positive results for drawdown lifetime mortgages, identifying confidence in the market for homeowners with existing plans.
Here’s what the report has to say on the trends between new vs existing customers.
New equity release customers – Q1 2024
As homeowners wait to hear of a drop in equity release interest rates, the impact to new activity is clear. With 4,698 new customers in Q1, volumes are 11% lower than those seen in Q4 2023 and 31% lower than Q1 of the same year.
Of the 4,698 that chose to release funds, 56% opted for drawdown lifetime mortgages, giving them the option to take an initial payment upfront, whilst retaining a pot of money in reserve for future lending.
As the interest rates on drawdown mortgages are set at the time you release the funds, you can still benefit from lower interest rates on future lending, if they become available. An important product feature in a market that predicts lower interest rates in the coming months.
Although 56% represents the highest share of new customer activity for drawdown mortgages for more than 2 years, caution over interest rates was still evident, with customers taking just 52% of the total loan as their initial instalment. A significant reduction compared to the 66% average seen throughout 2017 to 2022.
Existing equity release customers – Q1 2024
There was a total of 9,518 returning customers in Q1 this year, 7,753 of which accessed their reserve facility and 1,765 agreed further advances.
Of those who accessed their existing facility, the average customer released £12,822, 4% lower than the same period in 2023 but 9% higher than Q4.
So existing customers still appear to be confident in accessing the money held in their homes albeit in a more considered way, again probably attributed to the prospect of lower interest rates in the months ahead.
To summarise
As the report suggests, for now, the equity release market ‘maintains a holding pattern’. Speaking of the latest findings, Chair of the Equity Release Council David Burrows said;
“The Q1 2024 data highlights the ongoing challenges facing the residential property market in the UK as the nation waits to see what happens next with interest rates and the health of the economy.
I believe that used in the right way, equity release plays an important part of financial planning in later life. For many of us our homes are our greatest financial asset, so it stands to reason that if required, it could play a part in paving the way for a more comfortable retirement”.
As David Burrows pointed out, the flexibilities of products available gives homeowners a wider choice when it comes to raising cash. It’s not one size fits all and equity release may not be the only option or the right choice for you. Which is why professional advice is a must.
I believe that it may take longer for the equity release market to recover due to interest rate uncertainty, which could be well into 2025.