Equity release lending plummeted by 61% to £722m in the first three months of the year compared to 12 months ago, following “turmoil in the mortgage market” after the mini-Budget, says Key.  

Plan sales dropped fell by 44% to 6,975 while the value of new equity released slumped by 57% to £570m over the same period, according to the later life lender’s Q1 Equity Release Market Monitor.  

The study says: “The mini-Budget has impacted rates, product availability and loan-to-values, which has seen fewer people access their equity in what has traditionally been the strongest quarter for the equity release market.”  

It adds: “A cautious approach from customers supported by specialist advice has also damped volumes and put to rest any fears that equity release is being used as a short-term solution for the cost-of-living crisis.”  

Borrowers on average released £81,703 in the first quarter, down from the £111,511 at the start of last year.   

Former Chancellor Kwasi Kwarteng’s September tax-cutting mini-Budget sparked fear on international money markets, leading to rising mortgage rates and the withdrawal of hundreds of products.  

Most of these measures were unwound by current Chancellor Jeremy Hunt in October and the November Autumn Statement.   

The lender’s survey points out that “green shots are returning to the equity release market”, with higher demand in April and May.    

Key chief executive Will Hale says: “There is no denying that the first quarter of 2023 was a tough one for the equity release industry.   

“However, as rates start to fall, confidence returns and the product flexibilities are increasingly appreciated, green shoots are returning to the market with April and May seeing more positive volumes.  

“Speaking to customers, we know that there is pent-up demand as people look to boost retirement income, tackle rising costs and support their families.   

“However, with the support of their adviser, they are being cautious around when to borrow, how much to borrow and considering if there are other options which better support their needs – both in the long and short term.”  

The report finds that 34% of the total value of equity released in the period was used to repay mortgages, while 15% went on remortgaging existing plans.   

Borrowers using some of their equity release to pay off unsecured debt fell to 20% from 29% a year ago, “which may be explained by people focusing on more immediate needs such as repaying mortgages – especially as those coming off fixed rates deals may be facing a significant hike in monthly payments”.  

The average age of customers increased by a year to 71, says the study, “partly reflecting the more cautious approach taken by customers as younger applicants were more likely to wait until LTVs are more appealing”.   

Just 27% of customers during the three months were under 65.  

Key’s Hale adds: “Advice is highly personalised, and we do anticipate that customers will return to the market determined to make more use of the flexibilities such as the ability to service interest or make ad hoc penalty-free repayments.   

“The recognition of the value that these features provide is vital and I would be entirely unsurprised if we saw innovation accelerate in this market, as we seek to bridge the gap in the later life lending market for those customers whose needs are not currently being met due to the LTV constraints with traditional lifetime mortgages, and affordability barriers with retirement interest-only mortgages  

“This – to my mind – is what will help to ensure that the remaining quarters of 2023 are more akin to those seen in previous years and we are able to help those customers who may need a later life lending option, but have a more diverse set of requirements than we can currently cater for.”