Lifetime loans slide 5% to £664m in the second quarter of the year from the previous three months, making it the quietest lending period for these mortgages in almost seven years, data from the Equity Release Council shows.
The fall in these loans between April and June is the lowest quarterly figure since the third quarter of 2016 when £572m of deals were struck.
Equity Release Council chair David Burrowes, says: “Higher interest rates have inevitably had a significant impact on the demand for lifetime mortgages like other mortgages.”
The body adds that 17,028 new and returning customers used equity release products in the period, which is up 2% that the previous quarter, but is 29% lower than a year ago.
It points out that April was the quietest month in the second quarter, “with the number of new plans picking up in May and again in June as monthly activity reached its highest point of the year-to-date”.
New customers increasingly opted for drawdown lifetime mortgages over lump sums compared with 12 months ago, the data shows.
It points out that 52% of new customers opted for drawdown lifetime mortgages, taking an initial withdrawal up-front with more held in reserve for future use, while 48% of customers opted for a single lump sum.
A year ago, the split was 45% for drawdowns and 55% for lump sums from new customers.
The trade association adds: “The higher interest rate environment, coupled with lower maximum product loan-to-values available, has seen customers reduce the amount they borrow.”
It points out that the average first withdrawal from a new drawdown plan was £59,294, a 35% fall from a year ago.
This is the lowest amount of equity released since the first quarter of 2017, despite UK house prices having risen by 33% since March 2017, the body says.
The Equity Release Council’s Burrowes says: “The socio-economic factors for releasing equity remain. People are living longer, they are not saving enough for retirement and they want to help themselves and their loved ones to live more comfortable lives.”
Key chief executive Will Hale adds: “Today’s Equity Release Council figures echo our own Market Monitor which suggests that the market is down as we continue to manage the challenges created by a high inflation rate environment and the mini-Budget at the end of last year.
“That said, there are early signs that the market is starting to gain positive momentum and that customers are becoming more accepting of the new normal.
“Rates are higher than they have been for several years but the same is true of residential mortgages. Indeed, the difference in average rates for lifetime mortgages and standard two-year or five-year fixed-rate mortgages is narrower than ever before.”
Legal & General Home Finance chief executive Craig Brown says: “It is interesting to note that the Equity Release Council’s data shows customers taking a cautious approach in the current market, with an increase in people turning to drawdown products rather a lump sum.
“We know that lifetime mortgages support a range of needs, including gifting funds to support loved ones. Our most recent internal data also showed that home improvements are still the most popular use of funds.”
