Report shows impact of higher interest rates on the lifetime market
Regular and one-off capital repayments across the UK mortgage market have totalled more than £21 billion per quarter since the fourth quarter of 2022, according to a new report from the Equity Release Council (ERC).
This figure, the council noted, was significantly up from the £17 billion recorded prior to the pandemic with mortgage holders now repaying record amounts of mortgage debt in the higher interest rate environment.
The ERC said that total UK mortgage debt remained high at £1.63 trillion in mid-2023. Despite this, the average home contains equity of £222,526, which is substantially more than the average pension.
Its Autumn 2023 Market Report also showed a shift in borrowing patterns among older homeowners already using lifetime mortgages to release equity from their homes during the first half of the year.
Compared with a year earlier, the average new lump sum or drawdown lifetime mortgage customer withdrew a smaller amount of money and a smaller percentage of their overall housing wealth.
ERC pointed out that this did not only signify customer caution but had also resulted from lower maximum loan-to-values (LTVs) as providers have adjusted to higher interest rates.
ERC data also showed that customers continued to use the flexibility of voluntary penalty-free partial repayments when they can afford to, with the average partial repayment at £2,527 during H1 2023.
Commenting on the report, Stephen Lowe, group communications director at Just Group, said the figures showed how the equity release market had experienced a major reset, which was not surprising considering that the current Bank of England interest rate of 5.25% was now more than 50 times higher than it was just two years ago.
“Changes on that scale are inevitably going to make people more cautious, particularly when they are making long-term decisions,” Lowe pointed out. “Against that backdrop, it was natural to see customer numbers dipping and the amount borrowed being reined in.
“Against that backdrop, sits the question of whether the market has hit a stable level from which it can grow. We have started to see the number of new plans agreed each month trend upwards and providers responding by increasing the number of new products available.”
According to David Burrowes (pictured), chair of the Equity Release Council, the equity release market had shown a strong resolve to keep an important lifeline open to customers during this challenging period for the UK economy.
“People are taking smaller loans and a smaller percentage of their available equity,” he said. “However, the stark outlook for people’s pension prospects means property wealth will remain a vital part of the equation to avoid a cost-of-retirement crisis. While mortgage pricing has jumped across the board, lifetime mortgage rates have weathered the storm better than some residential mortgages.”
“The current climate has created a degree of caution among borrowers but, thankfully, the lifetime mortgage market has evolved,” added Craig Brown, chief executive at Legal & General Home Finance. “It now offers greater flexibility so that homeowners can access the value tied up in property, while managing repayments over the life of their loan.”
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