Retirement Money News

Money unlocked from property via equity release is set to break the £4 billion this year, with homeowners taking out £2.989 billion via equity release in the first nine months of 2021, research released this month revealed.

Although the equity release market has remained strong this year, our research has found that since October, average equity release rates have been rising.

On 7 October 2021 the lowest initial equity release rate (MER) stood at 2.66% fixed, however just over a month later on 11 November, the lowest rate was 2.8% variable, with the lowest fixed rate standing at 2.96%.

To help homeowners decide whether a lifetime mortgage is right for them, below we’ve highlighted some of the most competitive rates available this month.

The plans highlighted below are not endorsed by Moneyfacts.co.uk but have been chosen as they offer competitive rates for the scenario that we have selected. It should be noted that other plans are available that offer similar competitive rates but may offer incentives, such as cashback, that suit the borrower’s needs better – as such borrowers should speak to an equity release broker who will be able to select the best plans for individual requirements.

In the first nine months of 2021 homeowners have taken out £2.989 billion via equity release, but new data shows that equity release rates are rising, which could dampen the market.

Although equity release is on track to break £4 billion this year, research from equity release advisers found that between July and September 2021 the total number of equity release plans taken out has fallen by 3.2% year-on-year.

While equity release rates may not have contributed to this fall, our research has found that since October equity release rates have been rising.

On 7 October 2021 the lowest initial equity release rate (MER) stood at 2.66% fixed, however today the lowest rate stands at 2.8% variable, with the lowest fixed rate standing at 2.96%.

This means that homeowners considering releasing wealth they have built up in their homes via equity release may want to research the market carefully before taking out a plan or else they could find themselves paying higher than expected interest.

It is important, however, to keep in mind that equity release products have become far more flexible in recent years. Now many plans offer the ability for borrowers to pay back some of the interest or make partial repayments, which can help to lessen the financial impact equity release has on the inheritance borrowers leave behind.

Meanwhile, as Simon Gray, managing director at equity release advisory firm HUB Financial Solutions, explains those considering switching equity release from a plan taken out 10 years ago will likely find rates lower now.

He said: “Anyone considering a long-term financial product needs to stay aware of how the economic environment is evolving and the new opportunities that may offer. Equity release plans are a good example because the fixed interest rates available today are lower than those available 10-20 years ago.

“We have seen a significant increase in re-mortgaging activity over the last two to three years and have been proactively contacting customers we think could benefit as an ongoing part of our advisory business activity.

“Our advice takes account of their current circumstances and any longer-term plans they may have to see if a more suitable plan is available on the market. Interest rates are clearly an important factor, but not the only one, for some people their circumstances may have changed. Modern equity release deals have more flexibility and options – interest-servicing, cashback, fixed repayment charges, for example – which may better suit that client than their old plan.

“Every week we speak with many customers who wish to explore re-mortgaging their lifetime mortgage. While some clients judge there are benefits to them re-mortgaging, that’s not true of everyone we advise.

“Some customers decide to keep the deal they have regardless of what other options may be available to them. As advisers our role is to ensure we understand each individual customer’s circumstances and ensure the customer is fully informed of their options before we make a detailed, personal recommendation.

“Further innovation could make re-mortgaging an attractive option for more people. Just Group has recently introduced medical underwriting across their lifetime mortgages. They estimate, by answering a series of questions about a customer’s medical conditions and lifestyle factors, around six-in-10 people could benefit by getting a lower interest rate, or for those that need to, the ability to borrow a higher amount. This could make re-mortgaging attractive to more customers.”

The Government has unveiled new laws designed to help retirement savers protect their pensions from scammers.

From 30 November 2021 pension companies can prevent the transfer of pension funds if they believe that funds may be transferred to a fraudulent third party.

Under current legislation savers have the automatic right to transfer their pensions without the approval of trustees or scheme managers. From the end of this month, however, a transfer request can be blocked by a trustee and scheme manager by giving it a ‘red flag’. An ‘amber flag’ can also be used to pause a pension transfer if there is some concern about fraud, which can be removed when the scheme member confirms they have taken scam specific guidance from the Money and Pensions Service (MaPS).

Although the new laws will take away the automatic right to transfer pensions, the Government states that currently 95% of transfers are not suspicious to trustees and scheme managers.
As well as this, all transfers to master trusts, collective defined contribution (CDC) schemes and funded public sector schemes will be designated as ‘safe destinations’, meaning that funds can be automatically transferred to these schemes.

Becky O’Connor, head of pensions and savings at interactive investor, said: “The proposals could help to prevent pension transfer scams because they remove the automatic right to transfer a pension – something fraudsters have been exploiting.”

She added: “The new system might slow down some pension transfers, although this should not be a significant risk once the regulations have bedded in. It is important that freedom to choose the right authorised and regulated provider is maintained for people who want to move their pension.”
Originally schemes administered by insurance companies were put forward as ‘safe destination’ and thereby exempt from the new legislation, however this proposal has been dropped. Tom Selby, senior analyst at AJ Bell, said: “Depending on the level of concern raised by the responses, this intervention could either be to block the transfer altogether or require the member to take scams guidance from Pension Wise.

“Crucially, it will be up to pension schemes to decide whether a transfer is suspicious or not. Whereas previously blocking a suspicious transfer came with the real risk of being sued, this legislation creates a specific legal framework within which members’ interests can be protected.

“Provided firms apply these rules sensibly and don’t delay matters by asking the risk questions on transfers where it is clear the risks are very low, they should add extra security for transferring members without impacting the vast majority of legitimate transfers.”

Falling equity release rates mean that some homeowners could save money by switching to a new deal at lower rate, but equity release borrowers need to be careful they are not hit with penalty charges that could cost them more to switch than they would save. Here we look at whether equity release borrowers will be able to switch from their current deal and the potential costs involved.