"Every corner of the mortgage market saw rising interest rates put the brakes on activity in 2023, and equity release was no exception with customers and their advisers taking a cautious approach."
- David Burrowes, chair of the Equity Release Council
Equity release lending totalled £2.6bn in 2023, following a record-breaking £6.2bn in 2022 and returning the market to the level of activity last seen between 2016 to 2017, according to the Equity Release Council.
The average amount borrowed by new customers in Q4 was £79,484, compared to £106,917 a year prior, with smaller loan sizes allowing customers to better manage their exposure to higher interest rates.
New and returning equity release customers totalled 13,651 in Q4, down from 17,078 in Q3 2023 and 20,597 in Q4 2022.
That means that for the year as a whole, there were 64,448 active customers either taking out new plans, making use of drawdown reserves or agreeing extensions to existing plans, a 31% decrease from 93,421 in 2022.
Overall, 2023 saw 26,119 new plans agreed, a drop of 47% from 49,285 in 2022. The majority preference (53%) shifted back towards drawdown lifetime mortgages, reversing the split from 2022 when lump sum lifetime mortgages made up 52% of new product sales.
This shift demonstrates the additional flexibility that customers are seeking to manage higher interest rates. With interest only applied as money is withdrawn, drawdown plans come with the benefit that, if rates fall, future withdrawals could be charged at a lower rate.
David Burrowes, chair of the Equity Release Council, said: “Every corner of the mortgage market saw rising interest rates put the brakes on activity in 2023, and equity release was no exception with customers and their advisers taking a cautious approach. This resulted in loan sizes shrinking and fewer people borrowing for more aspirational reasons.
“While we’ve grown accustomed to stronger demand in recent years, we shouldn't lose sight of how far the market has matured since activity was last at these levels. New product features and customer protections mean we are well positioned to serve the inevitable demand that will come as confidence returns. Council standards represent the pinnacle of protection for older consumers, which makes it crucial for them to seek out a member firm when exploring their options.
“It’s clear some people are holding out for future rate cuts, but with no timeline as to when this may happen or how sustained this will be, older homeowners will need to continue to consider what is right for their individual circumstances. Many people are relying on their property wealth to retire in comfort, and we are focused on ensuring they can access it confidently and securely.
“Whether the customer wishes to top up their pension, support their family or manage their borrowing in retirement, today’s products offer more flexible options to help manage costs, with voluntary repayments baked into every new plan. Ultimately it is about choice and it is vital that people plan carefully for the future and only commit to long-term products after careful consideration, expert advice and consulting with loved ones.”
Stephen Lowe, group communications director at Just Group, commented: “Today’s figures show what a tough year the equity release market has endured, particularly after the strong Covid-rebound in 2022 that broke all records. While existing borrowers were protected by fixed rates, the continued ratcheting up of the Bank of England interest rate to 5.25% in August was always going to make people cautious about new borrowing.
“Looking forward we have grounds for optimism as the dust settles. Expectations are that the bank rate has close to peaked and lifetime mortgage rates have been falling in recent months. It may take a while for that to show up in lending figures as people remain cautious and wait for the right moment.
“The bigger picture is still positive for the market. Homes are a vast reservoir of wealth for the over-55s. Population projections last week showed that the population of over-85s in the UK is expected to rise from about 1.6 million to 2.6 million by 2036. It is inevitable more will be looking for ways to supplement their pension income, improve their homes, or gift money to children."