"While it is too early to call this as the start of the recovery, there is cause for cautious optimism and we remain confident in the strength of the market."
A total of £664m was unlocked by new and returning equity release customers between April and June, down 5% on the previous quarter and the quietest lending period since Q3 2016 when £572m was accessed, the latest Equity Release Council figures show.
The number of new plans agreed for Q2 2023 was 6,682, down by 1% from Q1 and down 46% on an annual basis compared to Q2 2022 when 12,485 new plans were taken out.
April was the quietest month of Q2, with the number of new plans picking up in May and again in June as monthly activity reached its highest point of the year-to-date.
The number of active customers this quarter was down 29% year-on-year from 23,910 in Q2 2022, although there was a slight increase (2%) from 16,691 in Q1 2023.
New customer numbers fell to 2,004 in April from 2,384 in March, before recovering in May and June to 2,117 and 2,462 respectively. The uptick towards the end of the quarter suggests a level of certainty returning to the market, despite wider mortgage rate trends.
The higher interest rate environment, coupled with lower maximum product LTVs available, has seen customers reduce the amount they borrow. At £59,294, the average first withdrawal from a new drawdown plan represents a 35% decrease year-on-year from £90,646 in Q2 2022 and is the smallest amount seen since Q1 2017. This is despite UK house prices having risen by a third (33%) since March 2017.
Having reduced their total loan sizes by 21% over the last year from £137,480 to £108,645 over the last year, new drawdown customers are now taking 55% of this sum up-front and saving the rest for future use, compared with taking 65% up-front in Q2 2022.
The average size of a new lump sum lifetime mortgage reduced by 29% year-on-year, with customers taking £94,266 between April and June compared to £132,331 a year earlier. This is the lowest amount since Q2 2019 (£93,712).
David Burrowes, chair of the Equity Release Council, commented: “Higher interest rates have inevitably had a significant impact on the demand for lifetime mortgages like other mortgages, but the gap between residential and lifetime mortgage rates has narrowed over the last year. Equity release remains competitive and has lost none of the extra protections that have been added in recent years.
“Innovations in equity release can come into their own in a higher rate environment, with drawdowns allowing customers to take what they need in the short-term and make extra withdrawals in future if their circumstances change and interest rates fall. Optional repayments also give people freedom to keep their borrowing under control by limiting the effect of compound interest.
“The socio-economic factors for releasing equity remain. People are living longer, they are not saving enough for retirement and they want to help themselves and their loved ones to live more comfortable lives.
“We have seen steady growth in new customer activity in Q2, with June the busiest month of the year so far. While it is too early to call this as the start of the recovery, there is cause for cautious optimism and we remain confident in the strength of the market.
"Financial and legal advice remain vitally important to help customers understand their options. Equity release products are crucial in helping to meet current needs and avoid a later life lending drought, with higher interest rates and affordability tests making capital repayment or interest-only options harder for older borrowers to access.”
