2022 was unexpected in many ways. The effects of Covid continued, we saw a long-term war develop in Ukraine and the UK experienced a total of three different prime ministers at the helm. It was not a year anyone could have predicted.
Rising inflation during the year contributed to a cost of living crisis for many, which got worse with huge increases in energy bills. And, as the Bank of England tried to curb inflation through increasing interest rates1, data from the Office of National Statistics (ONS) suggests that the economy is still heading towards a recession2.
So, what effect did all this have on equity release? Let’s start with the housing market. As interest rates on borrowing skyrocketed, the average 2-year fixed rate house purchase mortgage rose from 1.6% in January to an eye-watering 6% plus in October, leaving many prospective home buyers struggling to make the numbers work.With rates rising sharply and mortgage approvals falling below pre-pandemic levels, it came as no surprise to see house prices start to drop.
Although the change in house prices also affected valuations for equity release lenders, the biggest impact was on LTVs. The increase of rates on government bonds, typically used to price a loan, resulted in some lenders deciding to pull out of the market completely. But, as in the 2008 crash, Aviva was not among them. We remain open for business, offering our enhanced rates and competitive terms as always.
In this environment of high inflation, high interest rates and recession, equity release remains a lifeline for many prospective customers. Whether it’s needed to repay debt, supplement income or help out lower income family members, there is always a place for equity release in wealth management and planning.
Contains public sector information licensed under the Open Government Licence V3.0
1 BoE rate history; ‘Bank of England Database’, Official Bank Rate history
2 Office for National Statistics, GDP monthly estimate, UK: October 2022