Like many developed economies, the UK’s later life lending market – mostly equity release mortgages – is sitting on a significant structural disconnect. While over-55s hold an estimated £3.7trn in property wealth, the equity release market remains small by comparison. Last year, total lending reached just £2.57bn according to industry group the Equity Release Council (ERC). While that represents an 11% increase from 2024, it accounts for a mere 0.07% of the total housing wealth held by older cohorts.
Change to support growth in this market, however, looks to be coming. The Financial Conduct Authority (FCA) is currently conducting a comprehensive market study into lifetime and retirement interest-only mortgages, with final findings expected in the fourth quarter of this year. Launched in March, the study aims to examine whether regulatory or structural shifts (or both) are required to bolster competition and provide new solutions to meet the changing needs of UK consumers, almost half of whom are not saving enough for retirement.
While ERC data showed a dip in lending during the first quarter of this year, citing uncertainty in UK and global economies slowing consumer decision-making, David Burrowes, Chair of the ERC, said that is not due to waning interest.
“What we’re seeing is not a lack of demand – enquiries are up – but a delay in cases coming through. Advisers are reporting strong levels of interest, but customers are taking more time and, in some cases, pausing decisions altogether,” he said.
“It could well be that we are set for an uplift as conditions stabilise and delayed cases begin to complete. Over the longer term, the underlying drivers of demand remain in place, and housing wealth continues to play an important role in supporting financial resilience later in life.”
The FCA appears to share this long-term view. Speaking at the Later Life Lending Summit, Emad Aladhal, Director of Retail Banking at the FCA, cited research from Fairer Finance indicating that by 2040, 51% of households aged 60 and over could benefit from accessing housing equity, unlocking around £23bn annually in today’s prices.
“That gives a sense of the scale of the opportunity,” Aladhal told attendees at the event. “We should not be talking about it as a market niche, but becoming part of a much bigger, everyday conversation about achieving financial resilience in later life.”
There are structural hurdles that must be cleared if the UK equity release market is to scale up from £2.57bn annually. While macroeconomic pressures like interest rates, which the Bank of England held at 3.75% in mid-June, sit outside the FCA’s purview, the availability of institutional funding seems to be a primary concern.
At the same summit, as reported by Shekina Tuahene of Mortgage Solutions, Ben Grainger, Partner at EY, said that the number of insurance companies funding equity release mortgages “is probably at an all-time low.”
The FCA’s terms of reference document that it published alongside the notification of the market study suggest it is acutely aware of this capital bottleneck. In his address, Aladhal noted that meeting consumer demand will require the provider market to expand via both incumbent growth and new entrants.
“We are concerned that existing providers and potential new entrants may face real barriers to growth and entry,” Aladhal said. “We’ve seen very little successful entry in recent years.”
While the FCA targets consumer outcomes and provider barriers from the top down, an additional tailwind from the Prudential Regulation Authority (PRA) is also on the horizon.
The PRA is currently working through CP2/26 – ‘Reforms to securitisation requirements’, a consultation paper that could increase the asset class’s appeal to institutional investors. The proposed introduction of more flexible due diligence requirements, alongside the potential for more favourable capital treatment of private, insurance-backed portfolios, could provide balance sheet relief that would help equity release funders, which may support additional securitisation activity, which has sprung to life (relatively) in recent years.
Reading between the lines of Aladhal’s speech, structural change appears almost inevitable.
Aladhal was explicit that if later-life lending is to become a true “fourth pillar” of retirement, the market cannot rely entirely on legacy products and funding models.
He also said that the regulator wants to see a dismantling of historic negative perceptions and make better consumer outcomes “easier to deliver at scale.”
All eyes now turn to the final publication of the market study in Q4 this year, which is expected to show clearly what changes the FCA wishes to make – and therefore, the extent to which the UK will be positioned to provide additional longevity-linked asset capacity to capital markets investors.
