The equity release market bounced back at the beginning of this year, with improvement in product choice and interest rates following the fallout of last year’s ‘mini’ Budget.
The latest report from the Equity Release Council, published today (April 25), showed that activity in the sector reached record levels in the final half of last year.
This was despite the after-effects of Liz Truss’s ‘mini’ Budget in September which prompted a slow-down in activity in the final months of 2022.
In the months immediately after the ‘mini’ Budget, product choice in the sector shrunk as interest rates rose sharply and lenders had difficulty pricing products.
At the time, some advisers told FTAdviser that they had seen interest in equity release ‘drop off a cliff’, as clients opted to hold out in hope of lower interest rates.
In November, equity release products remained around 8 per cent, up from 3.5 per cent just months prior.
At the beginning of this year, one Leeds-based advice firm which specialises in equity release, blamed the ‘mini’ Budget for having to cut 10 per cent of its staff as business levels slowed.
Since then, the number of products available on the market has improved and interest rates have come down. However, advisers have noted that on average they still sit above 6 per cent.
At the beginning of April, some advertised rates were as low as 5.52 per cent, with the Equity Release Council reporting that the average rate sat at 6.23 per cent.
Product numbers have crept back up towards 200, but maximum loan-to-values have been tightened from 47 per cent in August 2022 to 38.7 per cent in April of this year.
Retirement planning
Equity Release Council chairperson, David Burrowes noted that living costs and the increased versatility and flexibility of equity release products has helped boost the popularity of the product.
“A nation where so many pensioners struggle to afford a moderate standard of living simply cannot ignore the potential for property to help bridge the gap. Equity release could make a decade of difference or more to someone whose pension income might otherwise only cover a basic lifestyle,” Burrowes said.
Today’s report also highlighted that more people are using equity release as a way to help fund later life and retirement.
Knight Frank Finance’s head of later life, David Forsdyke said: “This demonstrates how property wealth is becoming a really important financial planning tool.
“In the high net worth space, it is being used to top up or replace income, to improve the tax efficiency of large estates, and to redistribute wealth to the younger generations.”
jane.matthews@ft.com
