The history of equity release is littered with false dawns but in recent times, the market had rebuilt its reputation and been a beacon of optimism for a generation of baby boomers who were ready to leverage their primary asset for a better future.

But all that was before September 2022. Among the many mortgage calamities resulting from the Truss-Kwarteng budget last September, was the impact on the bond markets and ensuing stress among the many pension companies exposed to it – in some cases the very funders of equity release mortgages.

After what had appeared like a sustainable and healthy run of growth over the previous couple of years, the equity release market has stalled.

Research early in 2022 from the Equity Release Council (ERC) showed an increase in the number of customers in the first quarter with 23,395 new and returning customers withdrawing equity from their property during first three months – a new record. 12,174 new plans were agreed, which represented a 21% increase from this time last year. Drawdown lifetime mortgages proved the most popular, with 54% of customers withdrawing equity using this method. Things continued to go well into the second part of the year.

The growth was perhaps unsurprising insofar as a rising number of borrowers had doubtless been spurred by the Bank of England’s fight against inflation and subsequent raising of interest rates. The cost-of-living squeeze has given more people at the top of the housing chain more reasons to release capital to support other family members as well as face the increase in prices themselves.

But these motivations are clearly demand-side. They persist even now. What has fundamentally changed is the supply-side willingness to participate in a market where the risks to funders are increasing.

Even before the mess of September last year, some lenders had already publicly communicated their reluctance to get into a fight for business – while others had sought refuge in specialist areas such as high value properties which can command better pricing. 

But since that fateful event of last September, equity release lenders have pulled more than 70% of lifetime mortgage deals. Now there are a fraction of that number on offer, a fall in the region of 70% since the bond market crash in October, and average rates are 6.74%.

The prospect of thinning margins, a drop in house-prices and the spectre of negative equity in a market that offers no-negative equity guarantees is substantially dampening enthusiasm.

It’s important not to lose sight of the fact that this is not standard lending. Loans must be serviced but not in the same way mortgages need to be managed. Most of these lenders are funded by pension money which, by its nature, is international in its appetite for returns and can be pushed into other markets where there are more lucrative gains to be had. It means lenders can dip in and out more easily according to market conditions. Certainly, a seismic shock of the nature of the Truss-Kwarteng budget would be enough to shake confidence.

It is a stark reminder to everyone in mortgage lending that funding calls the shots in most specialist markets and particularly in Equity Release. The market will undoubtedly return but the pace of that return will be determined by investor confidence.

James Ginley,

Technical Surveying Director,

e.surv