Following a record-breaking year for equity release in 2022, the industry took a considerable dip in 2023, with total lending down from £6.2 billion to £2.6 billion year-on-year.

It comes as little surprise after a year of uncertainty across the market, with high interest rates and shrinking loan sizes proving off-putting for many potential borrowers.

With total borrowing figures in 2023 set back to numbers last seen seven years prior, the question now is whether the equity release market will this year start to show green shoots of recovery.

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What happened with equity release in 2023?

When you release equity from your home, you must pay interest on the amount you borrow. This can be paid off while you are still alive but most people opt to repay what they owe when their property is sold, either when they die or move into long-term care.

Due to a process known as compounding, the interest you owe rolls up over time and you start owing interest on previous interest owed, which can build up significantly over 10, 20 or even 30 years.

While 2022 was a record-breaking year for equity release, with over £6 billion loaned across nearly 100,000 equity release customers, spiralling inflation near the end of the year saw the Bank of England hike up the Base Rate fourteen consecutive times, leading to a much more lukewarm 2023.

The impact of interest rate rises on the mortgage market was impossible to ignore, with fixed interest rates and Standard Variable Rates skyrocketing across the board. But it’s not just homebuyers and remortgagers who’ve been affected; new data from the Equity Release Council (ERC), the trade body for the equity release sector, makes it apparent that high interest rates put off a great deal of potential equity release customers and put something of a dampener on a what was a rapidly-expanding market – at least for the time being.

In 2023, 64,448 equity release customers took out a new plan, used some of their drawdown or reserves or extended an existing plan, a 31% drop from 93,421 in 2022. Of these, 26,119 were new customers in 2023, marking a considerable 47% drop from 49,285 in 2022.

While 2022 saw a record-breaking £6.2 billion of property wealth unlocked via equity release schemes, this figure more than halved in 2023, with only £2.6 billion borrowed.

Notably, a majority of these new plans were drawdown plans (53%), where the money is taken as an income or in multiple instalments, as opposed to lump sum arrangements, where the borrower receives the entire loan all at once. The first and only year thus far that lump sums proved marginally more popular than drawdown was 2022. 

Among new lump sum customers, the size of an average loan decreased by 26% from £131,687 in 2022 to £97,878 last year, the first time since 2019 that this figure has dipped below £100,000.

Drawdown customers cut back their initial borrowing year-on-year too, but agreed to keep a similar amount in reserve (£45,625 in 2022 to £43,687 in 2023), likely because interest charges don’t affect any funds that haven’t been withdrawn. With many hoping that interest rates will start to ease as the year progresses, these customers may be waiting for a period of lower rates to start taking out the remainder of their cash.

Total equity release customers served annually 2017-2023

Average size of new equity release plans agreed, 2017-2023

Graphs courtesy of the Equity Release Council

David Burrowes, chair of the Equity Release Council, said: “Every corner of the mortgage market saw rising interest rates put the brakes on activity in 2023, and equity release was no exception with customers and their advisers taking a cautious approach. This resulted in loan sizes shrinking and fewer people borrowing for more aspirational reasons.”

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Is now a good time to release equity?

With mortgage rates making positive downwards movements so far in 2024, equity release rates could be set to follow, and some rates have already reduced. If the government manages to continue reducing inflation and interest rates fall, this could reignite interest in equity release.

However, even if the market starts to recover, reaching the highs of 2022 could prove a very tall order. If you are considering equity release, bear in mind that it definitely isn’t right for everyone, so it’s essential to seek professional financial advice before proceeding, and you may want to think about the alternatives as well.

Burrowes said: “It’s clear some people are holding out for future rate cuts, but with no timeline as to when this may happen or how sustained this will be, older homeowners will need to continue to consider what is right for their individual circumstances.”

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