The equity release market saw record activity last year
Equity release has benefited from a prolonged period of innovation and product development, which Paul Carter (pictured), chief executive of Pure Retirement, said has made it an increasingly attractive proposition for a wider cross-section of the over-50s population.
The equity release market saw record activity in 2022, with 93,421 new and returning customers choosing the product, according to the Equity Release Council (ERC).
Equity release – why are customers choosing this option?
Carter said the rise in popularity can partly be attributed to declining rates, which sank to around the 2% level at the market’s lowest end last year, but also because of plan features.
Carter said that some features introduced recently have been enshrined into Equity Release Council product standards, such as all new products now offering the option of penalty-free optional repayments.
“Outside of that, we have also seen downsizing protection, penalty-free redemption grace periods on first death on joint lives plans, porting, and the ability to set up direct debits all become increasingly commonplace,” Carter added.
He said this pattern of product development, and the way it has created flexible products suitable for a range of circumstances, had contributed to a diversified customer base that has taken equity release firmly out of the realm of a product of last resort and into something that had become far more mainstream. This is evidenced by the fact that around 5% of Pure Retirement’s transactions are coming from owners of £1 million plus properties.
“We have also seen a greater variety when it has come to funds usage, and while debt or mortgage repayments and home improvements have remained popular, aspirational uses such as holidays and cars have naturally dropped off,” he said.
Equity release – market contraction
While the latest market figures are largely positive, Carter said the current challenges from the lasting effects of September’s mini budget cannot be underestimated.
Rates have risen across the market from the lows seen last year, and people have become more cautious when it comes to making major financial decisions. Carter said this contributed to an activity slowdown in Q4 that will likely continue throughout the early stages of 2023.
“I think it is fair to assume that there will be a market contraction this year, at least over Q1 or H1,” he said.
However, we are already seeing rates returning to the 5% mark again, so Carter believes stability does look to be returning. Last year’s figures also demonstrate an appetite, so he believes it will be a question of when consumer confidence and their willingness to make major financial decisions returns completely.
In the meantime, he thinks it is more important that consumers are finding the right retirement solution for their needs, and are not taking out a long-term product to solve a short-term problem.
“As an industry, and especially as lenders, we need to be supporting advisers and affording them the tools to deliver the best outcomes for their clients, and it is something that needs to be a focus in 2023,” Carter said.
Equity release – 2023 predictions
Carter said things can change so rapidly that it is difficult to offer any concrete predictions.
“I would like to think the market will steadily recover over the course of the year and return to the sorts of levels seen prior to the mini budget,” he said.
While product choice has temporarily shrunk, Carter said the flexibility and features remain, and combined with the very clear appetite that exists across a diverse customer base, he believes there is reason to be optimistic when market stability fully returns later this year.
Why do you believe equity release has risen in popularity? Let us know in the comments section below.
