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All but one equity release provider has increased the interest rates on its products so far this year, Moneyfacts.co.uk research reveals.
With the exception of OneFamily, every lender in the space has raised the cost of its lifetime mortgages since 2022 began. The average rate now stands at 4.33%, the highest seen this year, and notably higher than the record low average of 3.86% seen in March 2021. This is also an increase from the start of the year, when the average rate was 4.10%.
Product choice has increased significantly from this time last year, with the number of overall deals available rising from 492 to 665. Even just between January and March 2022, four more deals arrived on the market, while loan-to-value limits are creeping up.
The maximum loan-to-value (LTV) available on equity release products has risen, meanwhile, from 48% to 51%.
Demand for equity release reached a new record high in 2021, figures from the Equity Release Council show. Total lending climbed 24% year-on-year in 2021 to £4.8bn, smashing the previous record of £3.94bn set in 2018.
Some consumers are using equity release as a way to pass on an earlier inheritance to their children, helping them to get on to the property ladder against a backdrop of rising house prices, mortgage interest rates and living costs. Others will be using equity release products to plug the gap in their pension pots, for those approaching retirement. Figures from Canada Life show that 30% of over-55s with defined contribution pensions plan to use equity release to help fund their retirement.
Given this appetite for equity release, lenders are adapting their product ranges to create options that suit many different circumstances. This is why there are now more than 600 different lifetime mortgage options in the marketplace, explains Rachel Springall, finance expert at Moneyfacts.co.uk. To navigate this vast array of products successfully usually requires professional advice.
“Consumers may wish to use the wealth locked up in their home as a way of funding retirement, or even to ease the rising cost of living this year,” Springall says. “The equity release market boomed in 2021 during a time of record-low rates in the sector and rising house prices. However, interest rates charged on lifetime mortgages are rising this year, and this means unlocking equity out of a home may now be at a higher cost than if someone locked into a deal last year.
“Consumers may be unsure whether to take a lump sum or drawdown, however, the latter may prove popular for those only looking to release wealth as and when they need it most to mitigate incurred interest.” She adds that 61% of new equity release customers opted for drawdown lifetime mortgages in the fourth quarter of last year, the highest percentage all year, according to the Equity Release Council.
“Seeking advice from an independent broker is not only wise to assess all the options out there, but also to ensure it’s the right choice for both the homeowner and their relatives. Taking a lifetime mortgage will impact inheritance and, while some homeowners may feel pressured to make a decision amid rising interest rates and living costs, careful thought and planning is a must before they make any arrangement.”
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