Rising interest rates and the cost of living have meant the equity release market has changed in the last year and advisers may need to work harder to source leads in the year ahead, an industry expert has said.
Speaking to FTAdviser, More2life director of manufacturing and adviser propositions, Les Pick said the equity release market has enjoyed a period of “substantial growth” over the past few years, but “while this will continue, advisers may need to work harder to source leads and engage with customers”.
“Those who have taken their foot off the pedal for the entirety of December may well find that it takes them sometime to catch up in the new year,” Pick said.
A year of note
Pick believes the equity release market is on track for a record-breaking year in 2022, with lending expected to reach £6bn.
But despite this growth, Pick warned that 2023 will be a very different year.
“While the pandemic is a distant memory, the cost-of-living crisis will continue to bite and this sustained period of uncertainty will impact consumers spending as well as borrowing habits,” Pick said.
In Pick’s view, repayment of debt, a need to boost retirement income and a desire to support the wider family financially, are likely to be the main drivers behind the market in the new year.
“We do anticipate that we will continue to see fewer borrowers looking to fund discretionary spending and an increasing number focused on financial resilience as well as management,” Pick added.
Looking back on 2022, Pick recalls that the first four months of the year were “business as usual” for the sector as it started to see more customers using equity release and lifetime mortgage products to fund “pent up discretionary spend from the pandemic”.
April then saw the Equity Release Council introduce its ‘fifth standard’ which guaranteed all new customers the right to make ad hoc payments on their borrowing within lenders limits.
According to Pick, this simply formalised something many lenders were offering already but it helped make the products available on the market “the most flexible we have ever seen”.
All changed then in autumn following Liz Truss and Kwasi Kwarteng’s “mini” Budget.
In Pick’s words, the uncosted tax cuts in the “mini” Budget “set the hares running” in the later life lending area and led to some lenders exiting the market as well as higher interest rates in the sector than were seen in several years.
Since then, some lifetime mortgage lenders have cut their interest rates to sub-6 per cent levels, after brokers said their clients simply could not stomach 8 per cent rates leading to a ‘wait and see’ attitude which inevitably stalled lender sales.
More2life is one such lender, with Pick noting the company “worked hard with its funders to ensure we could continue to support customers”.
At the end of November, the lender announced that rates on its flexi-choice range fell to 5.94 per cent.
Despite the challenging rate environment, Pick expects to see the market remain robust in the new year but warned that it will “take time” before there will be a return to the rates seen at the beginning of 2022.
“As rates gradually edge down over the year, we are likely to see more higher net worth customers look to mitigate the impact of the frozen inheritance tax threshold as well as any poor performance of pension assets by using their property wealth,” Pick told FTAdviser.
“Supporting children with house deposits is likely to remain popular – especially as Hunt was clear that the changes to stamp duty are not permanent and will be reviewed, if not changed, by March 2025.”
Pick noted that the performance of the housing market will have an impact on consumer confidence which will impact the sector.
Although prices are expected to fall over the next two years Pick said: “this needs to be seen in the context of substantial growth over the last 10 years”.
In addition to this, the More2life director flagged the consumer duty as a key area of change for the sector in the new year.
“Given the scrutiny the later life lending market has come under before, we know that a lot of advisers already exhibit much of the necessary behaviour but brokers should take time to document, test and ensure that what they see as good outcomes is in line with the rest of the market,” Pick said.
jane.matthews@ft.com
