Equity release – customers' wants and needs are changing

Complex market conditions often result in customers looking for complex solutions, and Will Hale (pictured), chief executive at Key, believes the rising popularity of equity release can be attributed to the change in customers’ wants and needs.

With customers releasing an average £106,806 last year, according to the Equity Release Council, property wealth helped thousands improve their quality of life, manage debt, and support their wider families.

Equity release – rising demand

“The record high for equity release lending last year can be attributed to increased demand across a range of customer profiles,” said Hale.

He added that this has been driven by a combination of macro-economic factors influencing customers’ wants and needs, as well as continued competition in the lender community which has resulted in the development of a wider range of well-priced and flexible modern equity release products.

Hale said with difficult market conditions, lenders are vying to retain customers as well as to attract new ones, which has resulted in lower rates and improved product terms. 

“While the early part of 2022 saw a post-COVID return of a cohort of customers looking to use some of their housing equity to support aspirational purchases, such as holidays, the latter part of the year was dominated by needs based drivers,” Hale said.

Hale believes that is likely to remain the same in 2023 as the cost-of-living crisis really bites, alongside an acknowledgement that the long-term financial challenges over-55s face in terms of lack of pension savings and increased longevity are not going away.

Equity release – squeeze on finances

Hale added that the current squeeze on household finances is impacting people’s ability to service their monthly mortgage repayments and manage other types of borrowing.

“That is being reflected in how people use money from equity release, with around £3.3 billion of the property wealth released last year used to repay both secured and unsecured borrowing,” he said.

Equity release is not the right option for everyone, however. Hale said for those older customers trapped on expensive Standard Variable Rates (SVRs), unable to access cheaper fixed rate deals and/or facing a repayment shortfall, he believes a lifetime mortgage should be considered. 

“With equity release, people do not need to pass affordability criteria as repayments are not mandatory, yet they can choose to continue to service interest and/or make ongoing ad hoc capital repayments to limit the impact of compounding interest,” he explained.

These flexibilities, alongside the embedded protections of guarantee of tenure and a no negative guarantee, Hale said, can make equity release products an attractive option for some customers given the current environment.

Equity release – long term drivers

While the long-term drivers of the later life lending market are strong, Hale anticipates that the first six months of this year will see lower completion numbers and lower average release amounts.

This theory is evidenced in Equity Release Council research, which highlighted that market activity dipped in the last quarter of 2022, with December the quietest month since before the pandemic.

With rates higher than at the same point last year and the loan-to-values (LTVs) available lower, Hale said advisers and customers are rightly being cautious about borrowing for anything other than pressing needs, sometimes delaying decisions, or taking out only the minimum amount required.

“Specialist advice taking into account potential vulnerability and applying tailored approaches to individual circumstances remains crucial in achieving good outcomes for all customer,” he added.

Why do you believe the popularity of equity release has continued to rise? Let us know in the comment section below.