Lifetime mortgage repayments surged to more than £21bn a quarter since the end of last year, data from the Equity Release Council shows, as borrowers reacted to higher interest rates.
These regular and one-off capital repayments across this mortgage market jumped from £17bn before the pandemic, according to the body’s latest Autumn Market Report.
It adds that there are signs of “customer caution” since the Bank of England’s Monetary Policy Committe lifted the base rate 14 times since December 2021, as it battles inflation.
The study says: “New customer numbers were 45% lower in the first half of 2023 than a year earlier as providers, advisers and customers alike reset their expectations in light of the higher interest rate environment.”
The report adds that average new lump sums fell to £98,407, on a £380,087 property, in the first half of this year — from £132,085, on a £423,556 property, a year ago. This resulted in a decline in loan to value to 25.9% from 31.2% over 12 months.
Average drawdown lifetime mortgages withdrew £104,443 (with £60,534 upfront), on a £428,539 property in the first half of this year — from £134,692 (with £92,580 upfront), on a £441,270 property, a year ago. This resulted in a decline in loan to value to 24.4% from 30.5% over 12 months.
The study says: “Compared with a year earlier, the average new lump sum or drawdown lifetime mortgage customer withdrew a smaller amount of money and a smaller percentage of their overall housing wealth.
“As well as a sign of customer caution, this has also resulted from lower maximum loan-to-values as providers have adjusted to higher interest rates.”
Equity Release Council chair David Burrowes, says: “People are taking smaller loans and a smaller percentage of their available equity.
“However, the stark outlook for people’s pension prospects means property wealth will remain a vital part of the equation to avoid a cost-of-retirement crisis.”
Just Group communications director Stephen Lowe adds: “Today’s report shows how the equity release market has experienced a major reset which is not surprising when you consider that the Bank of England interest rate of 5.25% is now more than 50 times higher than it was just two years ago, pushing up borrowing costs sharply.
“Changes on that scale are inevitably going to make people more cautious, particularly when they are making long-term decisions. Against that backdrop, it was natural to see customer numbers dipping and the amount borrowed being reined in.
Legal & General Home Finance chief executive Craig Brown points out: “The current climate has created a degree of caution among borrowers but, thankfully, the lifetime mortgage market has evolved and now offers greater flexibility, so that homeowners can access the value tied up in property, while managing repayments over the life of their loan.”
HUB Financial Solutions managing director Simon Gray points adds: “There’s been a change in market conditions caused by rapidly rising interest rates which, after years of low rates, is naturally going to make people think carefully about future borrowing.
“Existing customers are protected by fixed interest rates, while future borrowers are not necessarily locking into today’s rates forever, because of the option to rebroke should interest rates fall back.”
