Equity release market – what are the current trends?

Among the trends that highlight the current motivations for customers releasing equity, there is a particular emphasis on debt management.

Approximately 54% of the total amount of equity released in Q1 2023 was used to action debt-related concerns, 34% of released funds were used to repay a mortgage, 15% for lifetime mortgages, and 6% for unsecured borrowing, according to data from the Mortgage Advice Bureau.

Steve Humphries (pictured), proposition director at the Mortgage Advice Bureau, said this demonstrates how customer behaviour remains on using equity release to improve financial stability. Now, Mortgage Introducer has sought the expertise of two specialists operating in the equity release market to gauge the sector’s trends, challenges and longer term expectations.

Equity release market trends

While there is still significant demand for equity release, Humphries said the current market is facing challenges that are prompting potential customers to reconsider before jumping in.

“The number of leads in the market remains high, indicating continued consumer interest, but many individuals are adopting a cautious approach as opposed to immediately proceeding with equity release,” he said.

Humphries said this has been influenced by factors such as higher average rates and lower loan-to-value (LTV) ratios, caused by the ramifications associated with the mini budget and the ongoing cost-of-living crisis.

Equity release customers can be categorised into two camps, Humphries said, those who need to pursue equity release as a means of lowering their monthly expenditure and managing debt, and those who aspire to engage in equity release.

“It is this latter group that are adopting a ‘wait and see’ approach, and this is reciprocated in the latest figures released by the Equity Release Council, with customer figures in Q1 2023 at their lowest since the start of the pandemic,” he added.

Thomas Brett, head of mortgage and lending at Contact State, said the equity release market has contracted.

“With higher interest rates and lower LTVs, younger potential borrowers aged between 55 and 60 are finding the amount of equity available does not fit with what they are trying to achieve,” he said.

Brett said this means they cannot release enough equity to clear an outstanding mortgage; as such, he believes equity release firms need to engage with older borrowers.

“To do this, they need to work on more innovative advertising and lead generation journeys to increase the average age of the customer who enquires,” he said.

Many firms, Brett said, accept that lead generation is tougher than it has ever been in the sector, and he believes businesses need new routes to the consumer.

“The most successful equity release businesses are reviewing their customer acquisition strategies, to find better ways of enriching the customer journey and nurturing sales prospects,” Brett added.

Equity release challenges

Brett said rates and LTVs remain a challenge, but added that 10 years ago, rates were over 8% and plans were still being sold, so he believes this is not a significant threat.

“However, advertising will need to change; as the rates fell from those highs of the 2010 - marketing teams focused all their messaging around falling costs and how equity release had become more affordable, but now that they are rising again, this will need to change,” Brett said.

Furthermore, for a long time, he said the success of lead generation journeys, both internal and external have been disjointed. Brett said one team cared about lead volume, another about lead to appointment, and then another team looked at appointment to application.

“The only metric which matters is lead to business, as this is when ROI is realised, and that the customer has a plan which is suitable for them,” Brett said.

In lead generation, he said the first question asked is ‘how much is a lead?’ - and it is understandable that with budgets reduced, firms will naturally be placing more and more emphasis on that question.

“However, that is not what the future of successful marketing it all about; firms need to maximise business from their spend by improving their BI capabilities, lead enrichment processes and agile customer journeys towards their advisers,” he said.

Humphries, meanwhile, said another of the major challenges in the equity release market at the moment is the constant movement of interest rates and swap rates.

This volatility, Humphries said, is causing lenders to frequently adjust rates, and even withdraw certain products from the market.

“We need to see more stability and confidence from lenders, as this will give both advisers and customers certainty and confidence before they proceed with a lifetime mortgage,” he added.

Additionally, while upcoming Consumer Duty changes are being widely acknowledged as a significant step forward for customers, Humphries said they have presented additional considerations for firms and advisers, with many dedicating countless hours to thoroughly understanding and incorporating the new requirements into their day-to-day working practices. Although important, he said this focus on compliance is potentially taking away attention from immediate customer needs in the short-term.

“While these challenges are very much in existence, there is still optimism for the future; we anticipate the introduction of new and innovative products in the equity release market this year,” Humphries said.

This would, Humphries believes, enable advisers to approach equity release with a fresh perspective, ultimately leading to better outcomes for customers.

“It would also be fantastic to see more lenders entering the market with ‘green’ products, particularly in the lifetime mortgage space,” he said.

Expectations for 2023

Humphries said the equity release market is beginning to bounce back with decreasing rates and renewed confidence among consumers, which he believes is down to a number of elements.

“Firstly, insufficient pension provision is pushing people to explore alternative options for securing their retirement,” he said.

There is also, Humphries said, a growing desire for a comfortable standard of living in retirement, as well as the ambition among lenders to provide intergenerational support. Another contributing factor, Humphries said, is the increased flexibility in equity release products.

Nowadays, he said customers have the freedom to service the interest on their loans, and even make ad-hoc repayments, providing them with greater control over their financial situation.

“Looking ahead, the impending Consumer Duty deadline on July 31, along with the ongoing impact of the mini budget, should encourage lenders to create new, innovative solutions, which means advisers can cater to a wider, more diverse customer base,” Humphries said.

On the whole, Humphries said the equity release market is taking steps towards a more positive trajectory, with the remainder of the year likely to return to the healthier outlook that we have experienced in previous years.

Brett, meanwhile, said online digital innovation, particularly in the marketing process, will also be key in the year ahead, especially as Consumer Duty goes live this month.

“With Consumer Duty, sludge design style calculators and tools that promise an online quote, but in reality pull consumers into a sales journey, will start to disappear, and engaging customer journeys where the consumer can take charge with how and when they receive advice will become the norm,” Brett said.

Those firms that invest in new and innovative ways to engage with equity release prospects, and start to offer online appointment booking processes and mutually beneficial marketing partnerships, Brett said, will be the ones that retain the trust of the consumer.

What trends have you witnessed in the equity release marketplace? Let us know in the comment section below.