How are current economic conditions impacting the Lifetime Mortgage market?

Against a backdrop of rapidly rising inflation and bank base rates, the equity release market has seen a series of upward interest rate movements in recent months.?

And with uncertainty in economic outlook likely to drive continued price volatility in the near future, what does this mean for the cost of borrowing, and the relative attraction of later life borrowing to consumers and the success of the market itself?

A common myth

The compounding effect of rolled-up interest, potentially high exit charges due to gilt-based ERCs as well as a relatively small pool of available lenders and lending options gave a historical impression that equity release was a niche borrowing option of ‘last resort’.

Modern equity release

All of that has changed in the second half of the last decade, and rapidly so. An exponential rise in lending options, the introduction of modern lending features (including the increasingly popular ability to repay capital without penalty to help manage debt levels) and falling interest rates have driven a sustained boom in business that only a global pandemic would ultimately stifle temporarily.

The market today

We are in a perfect storm of economic influences right now - rapidly rising inflation, the cost-of-living crisis, and the effect on long-term gilt and swap rates caused by everything from the mini-budget to the war in Ukraine.

Today, the impact of the wider economic landscape has pushed mortgage rates into an AER territory that some borrowers will not have anticipated. ?For a customer looking to repay their existing mortgage, lifetime mortgages with modern flexible lending features like interest rates fixed for life, and the ability to choose whether to make repayments into retirement, could become an increasingly attractive option to consider.

This is a trend already evidenced in Key Group’s Market Monitor report which in H1, 2022 revealed the percentage of borrowers taking out equity release to repay debts had risen from 53% in H1, 21 to 57% in H1, 22.

A strong market

So even as interest rates began to rise in 2021 and throughout 2022, the equity release market has continued to flourish. 2021 was a record year for lending (￡4.7bn) and 2022 is set to break that again with perhaps as much as ￡6bn of lending based on current run-rates.

Consumer confidence and interest in later life borrowing has never been greater and, if anything, the background of individual as well as familial economic pressures is fuelling some of this demand.?

As people on fixed retirement incomes struggle to make ends meet, children struggle to raise the deposits required to get on the property ladder, and debt (especially unsecured debt, such as credit cards) soars amongst the over-55s, equity release is still a viable and financially attractive solution to many – including, of course, the ‘Bank of Mum and Dad’.

The importance of expert advice

As ever, specialist financial advice is absolutely critical. Those seeking to refinance and perhaps use debt as a way of bridging gaps in later life finances need expert advice to ensure they get the best outcome and avoid making bad long-term decisions that provide only short-term financial relief.?

With the right help and advice, later life borrowing looks set to continue to play a critical role in the financial outcomes for the over-55s in the UK.