Mortgage repayments across the market have increased to a record £21 billion per quarter since the end of 2022 as higher interest rates impact homeowners.
The figure is up from £17 billion before the pandemic, according to the Equity Release Council’s Autumn 2023 Market Report.
But high levels of debt and a lack of pension savings make it increasingly likely that homeowners will need to borrow against the value of their properties in later life to make ends meet.
Discounting mortgage debt, the average UK home contains equity of £222,526.
Lifetime mortgage rates have become more competitive in recent years, the Council points out. In 2013, the average lifetime mortgage was almost 3% higher than the average fixed-rate residential mortgage, before dropping to 1.5% in 2022 compared with the average two or five year fixed rate mortgage. Over the summer of 2023, the rate gap fell to less than 1% versus five years products and less than 0.5% versus two year products.
David Burrowes, chair of the Equity Release Council, said: “While mortgage pricing has jumped across the board, lifetime mortgage rates have weathered the storm better than some residential mortgages.”
The data showed also a shift in borrowing patterns in the first half of 2023 among older homeowners already using lifetime mortgages to release equity from their homes. Customers have been choosing to withdraw smaller amounts of money and a smaller percentage of their overall housing wealth. As well as a sign of growing consumer caution, this trend has also come from lower maximum loan-to-values as providers adjust to higher interest rates.
The Council’s report also shows customers continued to use the flexibility of voluntary penalty-free repayments, with an average partial repayment of £2,537 in the first half of this year. According to the Council, if a new customer with a loan of £100,000 made this repayment every year over a 10-year period, they would reduce their borrowing costs by £37,845.
Burrowes continued: “The equity release market has shown a strong resolve to keep an important lifeline open to customers during a challenging period for the UK economy. 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.”
Burrowes said that homeowners are even more likely to carry mortgage debt into later life as a result of the ongoing economic volatility and cycle of interest rate hikes and called for the industry and regulators to ensure homeowners understand their options and make the “right, informed” choices.
He added: “We are completely focused on ensuring that customers receive the right advice at the right time so they can make well-informed decisions, in line with the Consumer Duty. No-one should turn a blind eye to equity release as an option for their later life financial planning, and it’s important they work with Council members to weigh up its practical benefits against all potential alternatives.”
Also commenting on the report, David Stevens, director of Savings and Retirement at LV=, said: “With the backdrop of rising interest rates and reduced savings, consumers are much more considered about how they could use equity release products to better suit their needs in later life. LV= research reveals that one in four adults would consider a lifetime mortgage, with 11% of workers planning to use the value of their home to fund their retirement.
“The opportunity for the industry is to continue developing products which offer useful options to customers, providing flexibility for the mortgage to adapt to changes in circumstances and lifestyle. This is an important element of enabling equity release to be seen as a foundation consideration in retirement planning for the many.
“The role of advisers in supporting their clients through making these choices is incredibly valuable to help customers decide with confidence what is right for them and addressing the worries they may have.”
