Interest rate rises have caused a significant year-on-year drop in the number of equity release products sold, although there are some signs of modest recovery.
Figures published by the Equity Release Council (ERC) show that a total of 17,078 new and returning customers used equity release products in the third quarter of this year to unlock money from their properties.
This figure was down by a third on the number using equity release int he same quarter in 2022, when 25,519 released lump sums from their homes. However this figure was slightly up from the numbers seen in the second quarter of this year.
In total homeowners released £716m from their properties between July and September this year. This is a more significant increase (8 per cent) on the amounts release in the second quarter of 2023 and is the busiest quarter of the year. However excluding the three months of the first Covid lockdown this is the lowest lending activity seen since the first half of 2017.
It is clear that rising rates this year have put a brake on this market, which is widely used by many older homeowners as a means of topping up pensions as well as helping younger family members get on the housing ladder. However the decision by the Bank of England to keep rates on hold last month may bring more stability to this market, though the higher rate may make this a less attractive long-term solution for some.
For many insurers and retirement businesses a dip in sales for equity release products has been balanced by rising annuity sales, with the price and relative-atrractiveness of each being driving by prevailing interest rate movements.
Just Group communications director Stephen Lowe says: “Overall business levels are still sharply down on a year ago but there are optimistic signs that a floor has been reached on which to build.
“Both new customer numbers and total lending in Q3 were the highest we’ve seen in 2023 and we would expect further improvement going forward. After the shock caused by the rapid rise in interest rates over the last two years, it is positive to see the ERC highlight a recent reduction in the average lifetime mortgage interest rates.”
He adds “An ageing population means an increasing number of homeowners are heading into retirement each year. The over-65s are estimated to have £2.6 trillion of net housing wealth. That offers a lot of firepower to those seeking ways to supplement their income, improve their living standards, pay off more expensive debt, or to generate lump sums for themselves or loved ones.
“Higher interest rates are naturally making people cautious, but the fundamental drivers of growth remain as strong as ever.”
