Cautious customers defer from equity release - but it will grow, says industry body

Cost-of-living slump for the finance solution mirrors the Brexit and pandemic effect

Cautious customers defer from equity release - but it will grow, says industry body

Low consumer confidence and higher interest rates are causing equity release customers to hold out for better market conditions,  but it retains its potential for growth, according to the sector’s industry body.

To date, the Equity Release Council has supported 650,000 homeowners to access £46 billion of property wealth, yet its chief executive, Jim Boyd (pictured), acknowledges it faces its challenges.

2022 was a record-breaking year for equity release, totalling £6.2 billion. But total lending was £2.61 billion in 2023 - a level last seen in 2017.

“It’s a tough market right now, and that’s reflected in the data, but the drivers for growth remain,” Boyd told Mortgage Introducer.  “People are living longer, and they have a desire to live better. Many have inadequate pensions savings yet at the same time they have significant housing wealth.”

The Equity Release Council’s latest research shows that attitudes to borrowing in later life continue to change. It polled 5,000 UK adults - more than one in four believe a later life mortgage could help them, up from one in five in just two years.

“So, when some mortgage professionals say equity release is a product of last resort, we know that’s simply not true,” Boyd commented.  “The equity release market tracks the fortunes of the wider residential mortgage market and we have not seen an upsurge in equity release, driven by the cost-of-living crisis.

“When consumer confidence is low and rates are higher, equity release customers are deferring, waiting for better market conditions - much like the rest of us when we are considering any major long-term financial decision.”

He said: “We saw the same thing during the uncertainty around Brexit and then the pandemic. My expectation is that the same type of pent-up demand will be released when economic conditions improve, consumer confidence returns, and the market adjusts to the interest rate environment as the ‘new normal’.”

What are the average equity release loan sizes?

Compared to 2022, the average loan size fell 26% to £97,878 in 2023, as more customers considered other options, Boyd suggested, or were more modest with their borrowing aspirations.    

 “That translates to real pain for our members,” he declared. “We understand that and we’re working harder than ever to support them. Only recently we revamped our standards to support new products, known as payment term or mandatory payment lifetime mortgages, which start life much like a RIO before converting to a lifetime mortgage.”

Boyd wants the government to set up an independent later life funding commission that takes a more pragmatic view on how the needs of a rapidly growing population are funded. 

“This has to take account of care funding, saving and intergenerational fairness, as soon one in four people will be over the age of 65,” he said.

“We will never solve the ageing population problem while we still have a Department of Work and Pensions,” he observed. “What we need is a Department of Work and Retirement, but the mortgage industry has a role to play too.”

The council is seeking to put together a cross-industry coalition of industry bodies to agree a blueprint for what ‘the well-functioning use of housing wealth in later life’ would look like.

“We want to reduce the risk of poor decision making when taking account of housing assets, which for many can exceed their pension pots,” said Boyd.

 “One easy win would be to ensure that there is greater consumer awareness of how to use the value tied up in property with midlife-MOTs, statutory communications as well as refocusing Pensions Wise (a government-backed service that offers free, impartial guidance to over 50s), which now rests with the Money and Pensions Service.”

The council is unique, according to Boyd, in that it represents the entire equity release value chain, from funders and providers to frontline advisers and ‘everything in between’.

“We lead a consumer-focused market by setting authoritative standards that go above statutory regulation,” he noted. “Products that meet these standards benefit from five key safeguards: a no negative equity guarantee, the right to move and potentially downsize, the right to make penalty free repayments, secure tenure and fixed rates for life.

“Our safeguards are underpinned by independent legal advice. Since 1991 we’ve required a solicitor to certify that the customer understands the risks and implications of each individual plan provided by our members, before it can go ahead.”

Read more: Equity Release Council issues new guide on clear communication

Why should brokers embrace equity release?

Emphasising the benefits of equity release, Boyd urged brokers to join the organisation.

“There’s no better way to demonstrate that you uphold the highest standards of consumer protections, service, and support,” he said. “In my view, aligning your business to good consumer outcomes is, and always has been, a precondition for sustainable, long-term success.

“Equity release has changed. Today’s product range gives customers far more options and flexibilities to choose from, which have broadened the appeal to a wider demographic of consumers.

 “The right product depends entirely on the customer’s circumstances, but the underlying message is the same. Don’t neglect the potential of property wealth to improve later lives and don’t leave it as an afterthought or last resort when helping your customers make financial plans.”

Boyd, who has headed up the council since 2018, is quite clearly passionate about his work.

“I have one of the most privileged roles in UK financial services,” he reflected. “I work with an incredibly talented team who are all focused on supporting good consumer outcomes. We’re small but we punch way above our weight.

“When you consider the ripple effect of equity release – giving families peace of mind, enabling gifting, stimulating the economy and creating employment  –  it’s no exaggeration to say our work has helped millions of people. We’re determined to help millions more.”