Equity release market to hit £6 billion new lending this year

The equity release market is projected to hit £6 billion in new lending this year after a record first half which saw the average customer release just over £100,000 in property wealth, new data from equity release adviser Key Later Life Finance has shown.

Key’s Market Monitor, which analyses data reflecting the whole market, revealed that the average amount released in the first six months was £100,468 which is more than £5,000 higher than in 2021.

Plan sales grew by 24.5% in the first six months of the year to 25,448 compared with last year, while the value of new equity released rose by 31.7% to £2.556 billion – a record high for new lending and plan sales in a half year.

Across the regions, plan sales and the total value of new equity released rose. Only London recorded a single digit increase in plan sales at 3.1%, although the value of new equity released in the capital rose by 12.2%.

The biggest-year-on year rise in the total value of new equity released was in the smaller and more volatile Northern Ireland market where the figure trebled. However, in comparison to other areas across the UK, the Northern Ireland market is still relatively small. Strong rises were also seen in Wales where the total value rose by 73%, followed by Scotland on 67% and Yorkshire and the Humber on 50%.

Northern Ireland also recorded the biggest year-on-year rise in plan sales at 136.5%, with Yorkshire & The Humber seeing growth of nearly 36%, followed by Wales and Scotland with a rise of around a third.

The strength of the housing market in the South East and London meant those regions accounted for nearly half, or 47%, of all equity released during the six months despite accounting for 32% of plans sold.

Read more: When is equity release the right option for borrowers?

“As an industry, the first half of the year has seen the market return to growth as we work to develop and grow to better serve over-55s homeowners,” Will Hale, chief executive at Key, said.

“With the cost-of-living crisis very much at the forefront of people’s minds, we’ve seen a continued focus on the management of both secured and unsecured debt – although the proportion of people who include some discretionary spending has increased.”

Key said increased flexibility and house price increases attracted new customers with average interest rates at 3.65%. These rates are lower than those recorded three years ago (3.92%) despite five Bank of England base rate increases in recent months. The previous two years saw average interest rates at 3.19% in H1 2020 and 3.02% in H1 2021 respectively.

The equity release adviser noted that this helped existing customers to manage their finances in the face of the cost-of-living squeeze with an additional £876 million taken out in further advances, and £200 million taken out in drawdown, which was 32% higher than in the same period last year. The report showed that customers used drawdown products during the six months to reserve £876 million worth of housing equity for use – a 32% increase from £666 million of the previous year. The average drawdown customer reserved was £52,363, compared with £45,746 last year, and took an initial advance of £58,115.  

However, customers who took advantage of their drawdown facilities during the last six months took out on average of £11,406, which is lower than the £13,765 last year.

Key also noted that historically low rates and increased product flexibility were encouraging more customers to remortgage. Its research shows a 79% year-on-year increase in the number of people remortgaging from 2,130 in the first half of 2021 to 3,817 in 2022.

Accounting for nearly a fifth (19%) of all equity released in H1 2022, customers chose to remortgage from the 5% average initial rate to a 4.2% average new rate, which could save over £16,000 in interest over a 10-year period.

“As is to be expected from a maturing market, we are seeing more people choosing to remortgage products and are delighted to be in a position to provide a better understanding to customers,” Hale commented.

Key also found an increase in the number of customers using property wealth for discretionary spending, but debt repayment is the major use of the money released – 57% of customers used some or all of the property wealth to repay debt, compared with 53% last year.

Read more: Equity release funds over £3 billion of retiree domestic spending.

“While pandemic and the cost-of-living crisis has affected all age groups, it is particularly critical in this market that we understand our customers’ needs and recognise their vulnerabilities,” Hale stressed. “You can only take out equity release with the support of a specialist broker as well as independent legal advice - choosing to start that conversation will help people to find the right option for their individual circumstances now and in the future.”