How Kwasi Kwarteng's mini-budget impacted equity release

Industry expert says Truss's chancellor accelerated economy’s issues

How Kwasi Kwarteng's mini-budget impacted equity release

With the former chancellor, Kwasi Kwarteng (pictured left), announcing his intention to stand down at the next general election, the notorious mini-budget he unveiled in 2022 has been described by one industry expert as accelerating “many of the inherent issues within the economy”.

Mark Gregory (pictured right) is founder and CEO of Equity Release Group – which supports advisers and customers, and whose brands include the comparison site Equity Release Supermarket. He believes the mini-budget, announced by Kwarteng during former Prime Minister Liz Truss’s short and ill-fated government, markedly impacted the equity release market.

A senior figure in the Truss cabinet, Kwarteng was sacked in October 2022. His brief tenure made him the second shortest serving chancellor in history - he lasted just 38 days in the role, after the mini-budget he produced resulted in financial turbulence and also led to the departure of Truss from 10 Downing Street.

“Equity release has always been a resilient market in times of adversity compared to other financial sectors,” Gregory told Mortgage Introducer. “In fact, I set up Equity Release Supermarket back in 2008, at the time of the financial crisis. Back then, interest rates were high, but there was a limited choice of lenders, and the market was still developing and has been ever since.

“That was the case until Liz Truss’s mini-budget in September 2022, which accelerated many of the inherent issues within the economy. The Bank of England raising base rates from an unnaturally low position, resulted in a double-whammy – we had equity release interest rates rising to over 9%, loan-to-values dropping more than 10% and lenders even temporarily withdrawing from the market.”

He elaborated: “That took away a large slice of our market, particularly at the top end – people who were looking for maximum lump sums, maybe for inheritance tax planning or replacing interest-only mortgages. It also affected the number of customers who were eligible or could use equity release for what they needed. The market consequently took a hit of between 50% and 60% in written business volumes.

“From our internal MI (management information) we also noticed that the conversion rate of leads had dropped by about half, so not only was the market shrinking but understandably people were also holding off, maybe waiting for interest rates to fall and LTVs to rise again.”

He added: “As a business owner, last year was a big learning curve, and meant addressing efficiencies within the business. One of the greatest efficiencies we introduced was a compelling reduction in our lead costs, dropping by over 65%.”

How is the later life lending market looking in 2024?

Over a year on from an extraordinary period of political - and therefore financial  - instability, Gregory seems optimistic about the current market.

“There is now vested interest within the market following the rise of a broader set of products and increase in RIO (retirement interest-only)/TIO (term interest-only) lending, which brings about higher case values,” he noted.  “Plus, with recent innovations in hybrid, diverse and more favourable products, we expect this to also raise the level of overall borrowing across the later life lending industry.

“Furthermore, the 15-year gilt index has been slowly coming down from the highs of 2023, which has enabled lenders to reduce their rates. Coupled with the fact that property values have held their own against expectation, we have now seen lenders begin to increase their LTVs.

“Hence, we are seeing the green shoots of recovery, with advisers feeling a renewed sense of confidence following consumer’s appetite for greater lifestyle purchases, as opposed to just debt consolidation mortgage repayments. That’s a sign that the market is starting to recover and hopefully positivity will continue throughout 2024.”

Do people understand equity release?

Gregory considers that the Equity Release Council “has been doing its part to lift the curtain and help people find out more”, but believes there is generally a lack of understanding around equity release products.

“A big part of this is due to a lack of information across the market,” he explained. “Other than ourselves, no other organisation has a shop window for equity release available to consumers, such as information on available products, features, repayment charges and more. This information is all accessible on our website, and it’s been there for some time.

“So, it’s not misinformation, but a lack of information out there in the market and available to customers. It’s a matter of breaking down those barriers because we know that once customers do understand equity release, the flexibility and choice around products, and it’s all very clear and transparent, then customers are very willing to listen and learn more.”

Gregory is keen for greater transparency in the industry, through the use of technology and accessible information. A customer who is informed - and therefore better prepared - ahead of a broker meeting, will have a much richer conversation with them, he believes.

“We make it possible for people to browse and understand the different products that might work for them, before then going through to an adviser,” he commented.