However, high levels of debt and a lack of pension savings make it increasingly likely that homeowners will need to borrow against the value of their properties in later life to make ends meet, the Equity Release Council says
UK mortgage holders are repaying record amounts of mortgage debt in the higher interest rate environment, as per the Equity Release Council’s latest report.
Nevertheless, high levels of debt and a lack of pension savings make it increasingly likely that homeowners will need to borrow against the value of their properties in later life to make ends meet, the Equity Release Council adds.
The Council report explores the effect of higher interest rates on the lifetime mortgage and broader mortgage market during H1 2023.
It shows regular and one-off capital repayments across the mortgage market have totalled more than £21 billion per quarter since the fourth quarter of 2022, up from £17 billion prior to the Covid crisis.
Total UK mortgage debt stayed stubbornly high at £1.63 trillion in the middle of 2023. In spite of this, the average home contains equity of £222,526 – considerably more than the average pension.
Among older homeowners already using lifetime mortgages to release equity from their homes, the Council’s data shows a change in borrowing patterns during the first half of 2023.
Compared with a year earlier, the average new lump sum or drawdown lifetime mortgage customer withdrew a smaller amount of money and a smaller percentage of their overall housing wealth.
As well as a sign of customer caution, this has also resulted from lower maximum LTVs (loan-to-value) as providers have adjusted to higher interest rates.
The Council’s data also shows customers continued to use the flexibility of voluntary penalty-free partial repayments when they can afford to. The average partial repayment was £2,527 in the first half of 2023.
The lifetime mortgage market has not been alone in experiencing the effect of higher interest rates. According to data from Moneyfacts Group, the uneven impact of rate hikes has actually decreased the gap between lifetime and residential mortgage rates.
Ten years ago in 2013, the average lifetime mortgage rate was nearly 3% higher than the average fixed rate residential mortgage. For most of last year, the difference was over 1.5% compared with the average two-year or five-year fixed rate mortgage.
Over the summer this year, this rate difference dropped to less than 1% compared with five-year products and less than 0.5% compared with two-year products. While the trend reversed marginally in September this year, lifetime mortgage rates have stayed more competitive in relative terms than they were just a year back.
David Burrowes, chair of the Equity Release Council, said: The equity release market has shown a strong resolve to keep a vital lifeline open to customers during a challenging period for the UK economy. People are taking smaller loans and a smaller percentage of their available equity. Nevertheless, the stark outlook for people’s pension prospects means property wealth will continue to be an important part of the equation to avoid a cost-of-retirement crisis.
He said: While mortgage pricing has climbed across the board, lifetime mortgage rates have weathered the storm better than some residential mortgages. The security and flexibility enshrined in Council standards include the ability to make voluntary partial repayments without the threat of their home being repossessed if repayments become unaffordable.
