Mortgage holders are paying back record amounts of debt in the higher interest rate environment, the Equity Release Council has found.

In its autumn 2023 market report, the Council has said that high levels of debt and lack of pension savings makes it increasingly likely that homeowners will need to borrow against the value of their properties in later life to make ends meet.

According to official data, regular and one-off capital repayments across the mortgage market have totalled more than £21bn per quarter since the last quarter of 2022, compared to £17bn before the pandemic.

Total UK mortgage debt remained around £1.63trn in mid-2023, yet the average home contained equity of £222,526, significantly more than the average pension.

Chair of the Equity Release Council, David Burrowes, said: “The equity release market has shown a strong resolve to keep an important 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. However, the stark outlook for people’s pension prospects means property wealth will remain a vital part of the equation to avoid a cost-of-retirement crisis.

“While mortgage pricing has jumped 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.”

The report also found a shift in borrowing patterns for older homeowners who are using lifetime mortgages to release equity from their homes.

Compared to 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 LTV as providers have adjusted to higher interest rates.

The Council’s data also showed that 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 H1 2023.

If a new customer with a loan of £100,000 made this repayment every year over a 10-year period, they would reduce their borrowing costs by £37,845. Over 15 years, they would save £69,305.

All products that meet Council standards allow new customers to make voluntary partial repayments with no early repayment charge, typically up to 10% of the loan per year.

Burrowes added: “Even before the current cycle of rising interest rates, many homeowners were facing the reality of carrying mortgage debt into later life. That is even more likely now, which is why we must double down on our work with industry and regulators to ensure all homeowners understand all their options and make the right informed choices.

“We are completely focused on ensuring that customers receive the right advice at the right time so they can make well informed decisions, in line with the Consumer Duty. No one should turn a blind eye to equity release as an option for their later life financial planning, and it’s important they work with Council members to weigh up its practical benefits against all potential alternatives.”

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