The last 12 months have been a turbulent time for equity release. With the rise in interest rates across all mortgage activity, the huge growth in equity release sales seen over recent years dropped in line with those recorded in 2017.
But with a brighter end to the year, I have been reflecting on what 2024 will hold for the equity release market and whether I believe lifetime mortgages are still a viable option for later life planning?
The highlights and lowlights of 2023
Having reviewed the Equity Release Council’s Autumn report, it is clear that 2023 was a very different year for equity release. After the huge post-covid boost in sales, the rise in interest rates saw a 45% drop in new customer numbers over the first half of the year and a 58% drop in total lending.
As homeowners were cautious to borrow and lenders became more reserved about lending, the size of new customer loans dropped to £98,407 throughout the first half of the year compared to £132,085 in H1 2022.
Drawdown loans where homeowners release an initial amount and hold cash in reserve for future lending also fell over the same period from £134,692 to £104,443.
The loan size for returning customers looking to release additional funds was also impacted, with lump sum volumes dropping from £31,222 in H1 2022 to £20,725 in H1 2023 and the average drawdown falling from £13,280 in H1 2022 to £12,904 in H1 2023.
However, as interest rates started to drop and customers realised that the low rates of previous years were a thing of the past, the end of the year started to show signs of recovery.
The range of products available to later life borrowers was again on the increase along with greater flexibility for customers. Plus, the gap between interest rates charged on standard mortgages compared to lifetime mortgages has now greatly reduced, making equity release a more attractive option.
Is equity release a viable option in 2024?
With government analysis suggesting that of the 5 million working age people due to retire in the 2020s, 14% are expected to fall short of the funds required for a minimum standard of living and 53% will fall short for a moderate standard of living, I believe the requirement for lending in later life has never been greater.
Although the housing market also took a slight dip in 2023, property prices remain at a high by historic standards, with the average property having £222,526 of equity.
So for some, releasing equity provides the perfect solution for plugging the financial gap. But equity release is not right for everyone, which is why it’s important to seek professional equity release advice and consider the alternatives.
In addition, lifetime mortgages offer more flexibility these days giving customers greater control over the loan. For example, according to the Key:
- 96% of products come with fixed early repayment charges that typically decrease to 0% over time.
- 68% of products offer downsizing protection giving customers the opportunity to repay the loan without penalty when moving to a smaller property.
- 57% of products have drawdown facilities allowing customers to make withdrawals in stages, helping to reduce the interest.
- 41% of products are available on sheltered or age restricted accommodation.
- 24% of products provide inheritance protection giving customer the opportunity to guarantee a percentage of the property value for beneficiaries.
These days it is also an Equity Release Council (ERC) requirement that member’s plans give customers the option to repay a percentage of the debt each year. In H1 alone, the average voluntary repayment was £2,527, which equates to a saving of almost £38,000 over 10 years, or £69,305 over 15 years. So a powerful tool if you are looking to control the size of the overall loan.
Plus, all plans provided by members of the ERC come with the negative equity guarantee, so you can be certain you or your family will never owe more than the value of your home.
So, with growing demand for later life lending, a wider range of plans offering greater flexibility and what I believe to be the peak in interest rate rises behind us, 2024 looks to be a more promising year for equity release.