The equity release market has "reasons to be cheerful", as increased product innovation combined with expected base rate cuts and gilt rates moving below 4% provide the foundation for renewed growth, Key Later Life Finance has said.

New data from the firm revealed that plan sales in the equity release market dropped by 45% in 2023 and total lending for both lump-sum and drawdown plans fell by 57% in the aftermath of the September 2022 mini-Budget.

Key said it believes that product innovations, including the launch of payment-term lifetime mortgages allowing customers to access higher LTVs and often at lower rates than are currently available through traditional equity release products, are “very encouraging”.

To evidence the continuing increase in flexibility that modern life mortgages offer, 86% of plans sold last year have fixed early repayment charges, while 74% have downsizing protection.

Key also highlighted the importance of the increase in products that include mandatory monthly repayments, optional scheduled repayments or ad hoc repayments, given the percentage of customers that are using lifetime mortgages to repay existing debt.

Chief executive officer at Key, Will Hale, said: "The later life lending sector does have some real reasons to be cheerful in 2024. We have already seen a good boost in consumer demand as the new year gets into full swing.

"We have seen the first shoots of some interesting product innovations that can provide a real boost for market growth, whilst addressing unmet customer needs. The variety of products that offer repayment options has increased and these provide the potential for customers to both release more cash in order to meet all their needs and to reduce their cost of borrowing – two things that have been barriers to volumes post 2022."

Key revealed that in 2023, plan sales by 45%, with the total amount of lending reaching £2.7bn.

The average amount released by customers was £74,148, compared to £106,806 in 2022, while the average age of customers increased slightly to 72 from 71.

Furthermore, 72% of money released went on mortgage and debt repayments compared with 67% previously, while a further 12% of the money released was used to remortgage existing equity release plans.

Hale added: "Towards the end of 2023 we saw gilt rates drop to below 4%, and as base rates drop in 2024, I am confident this will breathe new life into the core equity release market. We should feel confident the later life lending market is set for a return to growth in 2024."

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