Equity release customers are increasingly using funds to clear existing mortgages, highlighting a shift in priorities and a focus on financial resilience, new data from Key Advice shows.
Its analysis of customer data shows 63% used property wealth released through plans to repay a mortgage in the first quarter of this year, compared with just 36% in the second quarter of last year.
Key Advice believes the shift in priorities highlights customers’ focus on financial stability and a desire for certainty as interest rates have remained higher than many expected, and continued inflationary pressures mean household budgets have been further squeezed.
The data showed, however, that two-thirds of customers spread the funds they released across a range of purposes, reflecting how modern lifetime mortgages are a multi-use product, supporting the needs of a broad profile of customers and rapidly becoming a key part of financial planning.
The average initial amount released in the first quarter of this year was £62,930, up 13% from a year ago and the first increase in three years – with customers in London releasing £145,471.
However, the average total facility, including approved drawdowns, dropped to £78,942, reflecting a shift to customers focusing on immediate financial needs and advisers conscious of not increasing the cost of borrowing unnecessarily.
The percentage of customers using plans for home improvements dropped to just 5% from 14% in the second quarter of last year, and the percentage using to buy cars fell to 3.9% from 7.7%. Customers using money for home improvements tended to focus on improving accessibility, energy efficiency, or safety rather than conservatories or cosmetic improvements.
Gifting to children or grandchildren accounted for 9.1%, one of the highest usages of funds. With the November Budget likely to have increased tax implications for many, this focus on efficient intergenerational wealth transfer is likely to continue to be a key theme for the sector in the period ahead. Other areas to note included 9.1% of people paying off debts apart from mortgages and an increase in customers using money for holidays, 7.6% from 3.2%.
The average age of customers is currently 69, with 59% of applications coming from couples. Single women account for more applications than single men. The average property value was £319,808, and the average initial LTV is 19%.
Rachel East, Director of Advice and Adviser Services, Key Advice, said: “Equity release has become more about financial resilience. Stubbornly high interest rates and ongoing cost-of-living pressures are pushing households to use some of their property wealth to manage essentials first.
“Along with the increase in gifting, this reinforces the view of equity release as a strategic financial tool and that is being increasingly deployed to safeguard day-to-day financial stability and assist younger generations who are in need of assistance.
“Customers spread funds across multiple goals, showing equity release is increasingly relevant as part of a holistic plan to fund later life.”
