Increased product innovation combined with expected base rate cuts provide the foundations for renewed growth in the equity release market, data from Key Later Life Finance has revealed.
Key CEO, Will Hale, said the later life lending sector “does have some real reasons to be cheerful in 2024” as it has already seen a “good boost” in consumer demand as the new year begins.
This comes after a “turbulent” year for the market which saw plan sales drop 45 per cent and total lending for both lump-sum and drawdown plans fall 57 per cent.
This was driven, according to Key, by base rate rises and the aftershocks of the September 2022 mini budget.
Innovation and drops
Key said that product innovations, including the launch of payment-term lifetime mortgages, were “very encouraging”.
Additionally, to evidence the continued increase in flexibility that modern lifetime mortgages offer, the lender pointed to the fact that around 86 per cent of plans sold last year had fixed early repayment changes while 74 per cent had downsizing protection.
“We have seen the first shoots of some interesting product innovations that can provide a real boost for market growth, while addressing unmet customer needs,” Hale stated.
“The variety of products that offer repayment options has increased and these provide the potential for customers to both release more cash in order to meet all their needs and to reduce their cost of borrowing - two things that have been barriers to volumes post 2022.”
Hale identified a drop in gilt rates at the end of last year to below 4 per cent and base rates dropping in 2024 as reasons why he was “confident this will breathe new life into the core equity release market”.
Last year's figures
The later life lender also detailed figures from "turbulent" 2023, revealing that plan sales fell 45 per cent to 28,752 with 51 per cent of sales accounted for by drawdown and 48 per cent by lump sum mortgages.
Additionally, the total value of lending was £2.7bn with £2.1bn new lending plus £411mn of drawdown and £162mn of further advances from existing plans.
The average amount released by customers was £74,148 compared with £106,806 in 2022 while the average age of customers rose slightly to 72 from 71.
Insight was also provided into what consumers did with the money from their equity release, with almost three-quarters (72 per cent) of the money released going on mortgage and debt repayments.
Customers also focused on home and garden improvements with 44 per cent of customers utilising 12 per cent of the cash released to improve the home and a further 12 per cent was used to remortgage existing release plans.
Gifting to family accounted for 16 per cent of the money released compared to 14 per cent of a much larger amount in 2022 while spending on holidays was subdued at just 3 per cent.
tom.dunstan@ft.com
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