The number of people using equity release is down nearly a third from a year ago, new figures show.
The Equity Release Council said figures were down 29 percent in the first three months of this year compared to the same period in 2022.
It follows a sharp rise in share release rates, which reached 8 percent last November before dropping to a current average of 6.21 percent this month.
The rates have risen sharply compared to 4.16 percent in January last year and 3.95 percent in January, according to figures from Moneyfacts.
The number of people using equity release was 29% lower this year than a year ago
The equity release rate has risen sharply over the past year, reaching 8% in December 2022
The Equity Release Council said the number of new and returning equity release clients active between January and March this year fell to 16,691, down 19 percent from 20,597 in the last three months of last year.
Total lending is also down, falling by £699 million in the first three months of this year, the quietest on this measure since Q2 2020, the council said.
And new customers reduced their loan size in the first quarter of this year, with the average first release of a new lifetime mortgage falling 34 per cent year-on-year to £61,785, the lowest in nearly six years.
February was the quietest month of the first three months of this year, with numbers picking up in March as product rates fell from their peak in November 2022.
But the number of products remains well below the level of last summer. In September 2022, almost 600 different products were available. Currently it is below 200.
Equity release: Total lending fell to £699 million in the first three months of this year
Steve Wilkie, of mortgage broker Responsible Life, said: ‘The turmoil that has arisen in the aftermath of the mini budget in September is evident here in the spike in interest rates and the fall in the number of new clients releasing shares in the first quarter of 2018. 2003.
“While it has been quite a bump in the road for the equity release market, the recovery is underway, as evidenced by an uptick in activity we’ve seen over the past month.
Calmer guidance from the government has ensured that markets have cooled, interest rates have begun to fall and clients are returning to extract value from their properties, improve their lives after retirement and support their families.
“Higher rates have certainly made customers think, and new customers will need to understand that release rates of less than 4 percent of equity are unlikely to return to the market for some time.”
Graphic shows number of equity release clients from Q1 2018 through Q1 2023
The Equity Release Council agreed that equity release clients should adjust to higher interest rates.
The council’s David Burrowes said: ‘In many aspects of their personal finances, people have had to adapt to the realities of a higher interest rate environment.
These figures show that the equity release market has been no exception, although there are early signs, with falling rates and returning appetites, that a recovery is underway.
“Suitability and timing are everything when it comes to the decision to release equity. For some, it made sense to go ahead with their plans. Other potential clients have apparently bide their time to see what interest rates do next.”
Equity release can help people release some of the equity in their property to help share their wealth with loved ones
Equity release can help people release some of their property’s equity so they can choose how to share their wealth with loved ones.
However, equity release has had a bad reputation in the past after clients took “serious” financial hits.
The industry has been criticized for encouraging people to go into debt, especially later in life.
There have also been other concerns about equity releases, such as clients going into negative equity when the value of a property falls below the loan taken out for it when home prices fall.
There have been calls to review several issues, including prepayment fees on equity release products.
Most providers use a simple rate system, for example 10 percent in year on to 1 percent in year 10.
However, some providers charge an early redemption surcharge based on then-current government bond rates, putting customers at an “unfair disadvantage.”
This is because the fees are not transparent, as there is no way for a customer to know in advance whether they will be liable for a fee and, if so, how much.
In the past, clients have also gone wrong with the fine print on their equity release loans when it comes to prepayment penalties — such as couples having to pay an exit fee unless they both have to go to care.