The Equity Release Council’s Spring 2023 Market Report has revealed that the number of voluntary penalty-free partial repayments made by equity release customers grew by 48% in 2022.
More than 90,000 equity release customers reduced their loans by £102m in 2022 by making 190,374 partial repayments throughout the year, 48% more than were made in 2021. By reducing their loans in this way, these customers stand to save a further £116m in future interest costs over the next 20 years, the report said.
Making voluntary penalty-free part repayments was made a compulsory feature for all products that meet Equity Release Council standards from 28 March last year. It means customers can choose to make repayments while they are still alive, reducing their interest costs and preserving more of their property wealth for future use or to pass on as an inheritance.
The Market Report shows how homeowners are managing to improve their living standards in later life by drawing on property wealth to boost their existing income. The Council’s analysis shows the average single pensioner’s income falls just short of what is needed to support a minimum standard of living, as defined by the Pensions and Lifetime Savings Association’s Retirement Living Standards.
However, by boosting their income via equity release, they could afford a moderate lifestyle for 12 years or five years of living in comfort.
Similarly, the average pensioner couple could fund 18 years of moderate living or five years of living in comfort by topping up their income with the average equity release plan.
The Market Report shows equity release activity reached record levels in H2 2022, despite the after-effects of the mini-Budget in September prompting a slowdown in Q4. Since then, product pricing has fallen gradually over the last five months to an average of 6.23% at the start of April 2023, with advertised rates as low as 5.52%.
Product numbers have edged back towards 200, although maximum loan-to-values (LTVs) have been tightened from 47.0% in August 2022 to 38.7% in April 2023³.
David Burrowes, chair of the Equity Release Council, said: “Modern equity release is an incredibly versatile product. People can choose whether they want to make repayments without fear of losing their homes, and since this feature was embedded into Equity Release Council standards, we have seen people’s usage grow and their interest savings add up. By making modest repayments when they can afford to, customers can benefit from their property wealth in the here-and-now while reducing their overall borrowing costs by tens of thousands of pounds.
“A nation where so many pensioners struggle to afford a moderate standard of living simply cannot ignore the potential for property to help bridge the gap. Equity release could make a decade of difference or more to someone whose pension income might otherwise only cover a basic lifestyle.
“The option of turning property wealth into pounds in their pocket has never been more important for consumers and our ageing society. As the market recovers from the economic shocks of late 2022, it is vital that people consider the role of their homes in covering the costs of later life.”
Alice Watson, head of marketing communications at Canada Life UK, added: “Today’s report reiterates the crucial role that equity release plays in the personal finances of so many. Thanks to the compulsory introduction of voluntary penalty-free part repayments last year, customers can continue to enjoy greater flexibility and they are embracing the opportunity to do so – enabling them to reduce the impact of interest roll-up and preserve more of their property wealth for later life.
“Due to a combination of limited pension adequacy and the ongoing cost of living crisis, the need for financial advice has never been greater as customers search for flexibility in the midst of uncertainty. As an industry we must continue to look ahead and innovate to meet the needs of an ageing population under pressure and highlight the role that property wealth can play as part of a holistic retirement plan.”
