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What next for Equity Release market? - feature

Journalist: Emma Simon, Mortgage Strategy

ended 20. March 2024

I'm writing a feature for Mortgage Strategy on the equity release market and looking for views from mortgage brokers, later life lenders  and any specialist providers. 

Looking to get comment on the following points: 

  1. Is demand for equity release products picking up again, now that interest rates appear to have stabilised? What impact has the higher interest rate environment had on this sector? Will sales volumes get back to previous peaks? 
     
  2. Is there a need for more  product innovation in the market? Presumably there is a fairly constant need for this product (which may have increased with cost of living issues) but demand tends to fluctuate due to interest rate environment - what, if anything, can be done to address this issue? 
     
  3. Has the growth of Retirement Interest Only mortgages impacted demand from more traditional equity release lifetime mortgages? 
  4. Have you seen any change in type of person accessing equity release product or what they are using these funds for? Do you anticipate this changing in future? 

  5. Are there any government / policy changes that might help stimulate demand for these products or make it easier for providers to offer different lending options? 

Any other observations about the equity release market also appreciated. I need comments by close of play on Wed 20th March.  The feature will appear in the next edition of Mortgage Strategy 

 

Emma Simon 

9 responses from the Newspage community

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Bob Singh
Founder at Chess Mortgages
Equity release at the current levels can leave a serious dent in a person's equity. At a rate of just 7% compounded over, say 20 years, a £50,000 mortgage would increase to approx £200k in 20 years. Unless managed with cash injections, the position gets worse as time passes. It’s no wonder younger borrowers are only allowed a low LTV to ensure that the equity isn’t eroded. Modern day schemes that are Equity Release Council-approved carry a no-negative guarantee so the beneficiaries get something left after the sale of the home. During periods of low house inflation, the equity gap can start to close and a careful eye needs to be kept on this with regular reviews. The flexibility of overpayments should be a compulsory feature on such plans. There should be no restrictions on the use of the funds raised except to ensure it’s not being mis-used. Many borrowers raise funds to mitigate their IHT position.
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Simon Bridgland
Director at Charwin Private Clients
Lifetime mortgage lenders are no longer frozen in a trance-like state and are very much back in the room again. Borrowers looking to repay an existing debt with a lifetime mortgage are desperate for generous lenders to help them, but only a few lenders are willing to go to such lengths. For those simply wanting to get their hands on some money, there are plenty of cracking deals to be had. This market is very switched on. The lacklustre Budget has not helped at all, delivering a benign housing policy. The Chancellor needs to remember that change in the housing market only happens if you change the policy you are making.
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Aaron Strutt
Product and Communications Director at Trinity Financial
Some of the bigger banks have recently tightened their maximum age policies, which may well be linked to the demise of the lifetime mortgage market. Ultimately, older borrowers often need access to finance when they do not have a large pension or investment income. As their mortgage terms approach the end, they are trying to stay with their existing lenders for longer.
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Rowan Frayling
Managing Director at J Finance
Demand is certainly picking up and we have seen more enquiries in the past three months than the past year. The rates have impacted the activity levels generally but even from those proceeding, they are carefully considering the loan amounts due to the impact of compounding or if they're servicing the interest, then the impact of monthly payments on household budgets. We 100% need innovation because the last set of innovation such as RIOs was fairly poorly received, however the newer term products from L&G and the like appear to be more useful. I don't believe there has been a massive growth in RIOs. RIOs quite often don't work due to sole affordability and therefore equity release is an alternative that may work. The reason for release is more needs-based rather than aspirational, specifically those who need it to clear interest-only mortgages or similar, not those just wishing to take holidays and so on.
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Stuart Powell
Managing Director at Advice Guru
Make no mistake, the Equity Release market is back with a bang in 2024. Lenders have realised that the rate driven growth of the early 2020s came to a grinding halt in 2023 when rate shocks paralysed the market. Rate is no longer the driving force behind lenders' new products. Instead innovation and flexibility have become the foundations. Discounted rates for paying the interest monthly, lower rates if your property is more energy efficient, the ability to convert to repay with no charges in Year 4? Lenders have woken up, brokers are giving advice and not selling products, and consumers over the age of 50 have never had so much choice.
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Luke Thompson
Director at PAB Wealth Management
I have to say there is definitely more interest in equity release than there has been at any time in the past 18 months I would say higher rates have just stopped most people from making a decision with regards to equity release even if there has been a need for them to take an equity release mortgage.

RIO mortgages have never really made a huge difference in my opinion. The criteria is so strict on these products that unless the applicants have very strong income or are only looking for a small amount of borrowing they just don't work as well as intended.

I don't anticipate much changing in the market most of my customers are using equity release to repay an interest only mortgage which they haven't been repaying as they approach retirement. I feel this trend is going to continue for a while yet.
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Dan Osman
Head of Later Life Lending (Age 55+) at UK Moneyman
It depends how you define demand. Needs based borrowing has increased with the cost of living crisis. Aspirational borrowing reduced when rates peaked, but is now picking up.
Discounts for interest-servicing clients is a welcome development. With drawdown, lenders still penalise brokers who adopt best practice, paying lower proc fees on these funds compared to initial advances.
There is a mutually beneficial impact on both products. Neither should be viewed in isolation. If you operate in this space, you must weigh up all options. Often a client asks about, say, a Rio, but is more suitable for equity release, or vice versa. Risk involving future affordability, particularly where couples have disparity in incomes, has to be considered carefully.
As well as aspirational borrowers, there’s a trend of people looking at these products whilst continuing to work, rather than exclusively in retirement.
Any government/regulatory change increasing the flexibility of these products is welcome
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John Tilzey
Sales Director at finova
There is a general desire for lenders to accelerate growth in the market beyond organic rates. Currently, a divergence exists in product uptake due to higher interest rates, yet long-term lending availability is expanding. Product innovation, including offering higher LTVs and hybrid options blending interest with traditional equity release, widens market appeal. Anticipate variations in early repayment terms to make it easier for customers to pay more off their mortgage balance without penalty, and innovation through the integration of long-term fixed-rate lending with equity release products, creating another hybrid product variant. Pricing will always be key - lenders that can better profile risk, price accordingly and drive innovation at the edges will always stand to benefit.
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Iain Swatton
Director at Exemplar Financial Services
Despite prevailing interest rates, the demand for equity release (ER) persists, albeit subdued. While some consider ER their primary option, others await more favourable borrowing conditions. Continued product innovation is crucial, offering improved drawdown facilities and servicing interest payments. Transparency in loan performance monitoring ensures better client access to cost-effective options, crucial for informed decision-making. Flexible drawdown options help clients adapt to changing financial situations. Retirement Interest Only mortgages impact ER demand, offering broader client choice. More seek income supplementation amid cost-of-living concerns, likely persisting for retirement stability. Policy changes stimulating ER demand or facilitating diverse lending options can benefit the market. Enhancing consumer awareness and incentivising innovation would be key.