The latest data from MABs Later Life’s Market Monitor Report Q1 2023 has revealed an 8% decline in the number of customers choosing to use equity for remortgaging, and a 6% increase in using it for home improvements, compared to the same period last year.
The findings can be attributed to the changing landscape of the equity release market as a result of September 2022’s mini-budget. This led to higher rates, reduced loan-to-value ratios, and limited product choices due to recent regulatory changes - all of which have impacted the way customers are choosing to use the funds associated with equity release.
Over half of the proportion of equity release used in Q1 2023 was to manage debt
According to the research, one of the key drivers to release equity from a property in Q1 2023 was debt management, with the report identifying that 54% of allocated funds were used for this purpose. This included mortgage repayment (34%), a lifetime mortgage (15%), or unsecured borrowing (6%).
While the proportion of equity release used to repay a mortgage was up by 2% from Q1 2022, the amount being used for remortgaging decreased by 7% (now at 15%, compared to 22% in Q1 2022). The same applies to the proportion of equity being released for unsecured borrowing, which has decreased to 6% (versus 11% in Q1 2022).
Fewer equity release customers choosing to repay mortgages or existing debts
Similarly, the data found that the shifting market had also seen declines in the number of customers choosing to use equity release for specific purposes in Q1 2023 compared to Q1 2022.
The number of individuals refinancing existing plans has decreased by 8% - now at 6% compared to 14% in Q1 2022. Meanwhile, fewer people are able to repay mortgages (down by 5% to 24%) and unsecured debt (a 9% decrease, equating to 20%).
This decline in unsecured borrowing may be attributed to customers prioritising other costs once equity has been released. It may also be down to the fact that unsecured debt options, such as credit cards, can offer greater repayment flexibility compared to other types of borrowing.
Home improvements are no longer a driving force for equity release customers
Gifting funds to family or friends accounted for 13% of the total proportion of equity released in Q1 2023, with nearly one in five customers (19%) opting for this. Meanwhile, although 45% of customers chose to release equity for home improvements (up 6% compared to 39% in Q1 2022), it only constituted 11% of the total amount released, suggesting that it’s not a primary motivation for customers pursuing equity release.
Interestingly, closer inspection of the data also revealed that essential repairs and maintenance - such as rewiring and central heating upgrades - have seen an increase, whereas demand for new kitchens and conservatories has declined.
Despite the COVID-19 pandemic's impact on travel, there has been a noteworthy increase in individuals using equity release for holidays, rising from 11% in Q1 2022 to 16% in Q1 2023. However, the total value of equity used for travel remains steady at 2%, indicating that customers are exercising modesty in their travel aspirations.
Steve Humphries, Proposition Director (Later Life & Wealth), Mortgage Advice Bureau Later Life, added: “The Q1 2023 statistics from the MAB Later Life Market Monitor provide an insight into the unprecedented level of change experienced by the equity release market, much of which can be attributed to the fallout from the September 2022 mini-budget.
“As the market continues to settle, it’s crucial for us to understand and adapt to these shifts in customer behaviour regarding equity release usage. With this in mind, it’s encouraging to see that, despite these market changes, debt management remains the driving force for equity release - demonstrating how equity release continues to empower individuals to reach their financial goals with confidence and peace of mind.”
