Despite a challenging economic climate, the potential for growth in the equity release sector remains strong, as highlighted by the industry’s key representative, the Equity Release Council. In recent years, particularly in 2022, the sector saw a record-breaking influx with £6.2 billion released. However, 2023 witnessed a significant drop in total lending to £2.61 billion, a figure last observed in 2017. This decline reflects the current market hesitancy due to low consumer confidence and increased interest rates.
Jim Boyd, the Chief Executive of the Equity Release Council, remains optimistic despite the market downturn. He explains that fundamental factors such as longer life expectancies and substantial housing wealth, combined with insufficient pension savings, continue to drive the need for equity release solutions. Furthermore, recent research involving 5,000 UK adults indicates a growing acceptance of borrowing in later life, with more than one in four adults considering it a viable option, up from one in five two years ago.
Customer Behavior in Uncertain Times
High interest rates and broader economic uncertainty have led many potential customers to defer their decisions regarding equity release. According to Boyd, similar patterns of deferred decision-making were observed during the Brexit discussions and the COVID-19 pandemic. He anticipates a surge in demand once economic conditions stabilise and consumer confidence rebounds.
Adjusting to Market Needs
In response to the current market conditions and evolving consumer needs, the Equity Release Council has introduced new product standards that include payment term or mandatory payment lifetime mortgages. These products initially operate like retirement interest-only (RIO) mortgages before converting into lifetime mortgages, offering more flexibility and security to consumers.
Call for Government Involvement
Boyd advocates for the establishment of an independent later life funding commission by the government to address the financial needs of the UK’s aging population more pragmatically. This includes considerations for care funding, savings, and intergenerational fairness, as the demographic of those over 65 is expected to reach one in four shortly.
Industry Collaboration and Consumer Protection
The council is working towards forming a cross-industry coalition to develop a comprehensive blueprint for utilising housing wealth in later life. This initiative aims to minimise poor financial decision-making and promote better consumer awareness of equity release options. Boyd highlights the importance of their standards, which include guarantees like no negative equity, the right to make penalty-free repayments, and the provision of independent legal advice to ensure consumers fully understand the implications of their agreements.