The state of the Equity Release Market

Housing Equity & Later Life Lending: Why There’s Reason For Cautious Optimism.

At the risk of adapting Mark Twain’s quote: they say that bad news will go round the world while the truth is still putting on its shoes.

You don’t need to be a psychologist to understand that pessimism can be addictive, particular across mainstream news channels. So, what is the state of the equity release market, and what are the reasons to be optimistic as we face into the second half of 2023?

There is no denying that the surge in mortgage interest rates following the September 2022 Fiscal Statement left many mortgage customers reeling, with total mortgage debt hitting a new record of £1.6trn in December 2022. This figure prompted the Equity Release Council to voice concerns that many older people might carry mortgage debt and burdensome overpayments into retirement.

While for some customers this represents a real impact, it’s important to balance the picture. The upside is that the surge in mortgage rates also prompted many customers, if able, to make lump sum mortgage repayments, to reduce their exposure to rising mortgage interest rate costs.

In fact, in the final quarter of 2022 £6.7bn of overpayments were made, which was the highest quarterly figure on record, and 14% higher than in Q3 - and in doing this, the total ‘bedrock’ of equity in the market would have continued to grow.

Away from mortgage repayment trends, we should not disregard the volatile nature of house valuations, driven by high mortgage rates and the cost-of-living crisis. With these in mind it’s tempting to think that the future for the equity release market could be challenging, especially given the activity level statistics released by the Equity Release Council for Q1.

However, like all market turmoil, it’s important to stand back and consider the broader context, and despite some recent downward adjustments to house valuations, the property market continues to fare well. In fact, in 2022 as a whole the total value of private property in the UK grew by 7%, finishing the year at more than £7.3trn.

Additionally, during that period the total net wealth in property grew 8% to reach £228,300 per household – or £5.6trn in total. Those growth rates may be modest compared with historical equity growth, but they still represent a gain in the total bedrock of equity rather than an erosion.

Let’s also remember that the slower growth in total equity needs to be seen relative to the overall gains in earlier years. This means that customers still have access to equity which has built up over time. Whilst recent market forces have been challenging, their impact has not necessarily been critical to the equity market at large.

So, despite some significant market movements, the underlying shape of the equity release market provides cause for optimism, and this has been evidenced by the gradual lowering of rates and steadily rising of products available in the market.

Standing back, it’s important to reflect on the wider context, and not be distracted by the heat of recent headlines. Equity release remains a buoyant market and it’s important to counter panic narratives that suggest all available equity is gone.