Drop in equity release rate could save over £32K | moneyfacts.co.uk

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Lieke Braadbaart

Online Writer
Published: 04/07/2017
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If you're looking to release equity from your home to help fund retirement, pay off your mortgage or go on a once-in-a-lifetime holiday, we've got good news! The interest rates on fixed lifetime mortgages (one of the two main forms of equity release) have fallen for the eighth consecutive month in July, to stand at 5.53%.

Rates down…

This current average of 5.53% is down from 5.55% in June and from 5.77% in December 2016, before the run of rate cuts. It's also a substantial change from a year ago, when there was an average rate of 6.25%.

Richard Eagling, head of Pensions at Moneyfacts, explains why this is happening: "The greater number of lenders entering the equity release market combined with new sources of funding has helped to intensify competition among equity release providers, leading to lower equity release rates."

… Debt down

These rate cuts mean that equity release customers should now be able to enjoy significant long-term savings. For instance, an individual opting to release a lump sum of £75,000 using the average fixed rate lifetime mortgage today would face an outstanding debt of £168,151 in 15 years' time, £18,055 less than the same customer who opted for a similar equity release product a year ago.

The table below illustrates that over a 20-year term, the amount of interest saved is even greater, at £32,060. It also looks at the savings compared with seven years ago, when lifetime fixed mortgage rates peaked at 7.07%.

  July 2010 July 2016 July 2017
Average fixed rate lifetime mortgage 7.07% 6.25% 5.53%
Outstanding rolled up lifetime mortgage balance based on an initial £75,000 lump sum after 15 years £208,967 £186,206 £168,151
Outstanding rolled up lifetime mortgage balance based on an initial £75,000 lump sum after 20 years £294,047 £252,139 £220,079

These figures show that even a small reduction in the interest rate can have a significant impact on the final outstanding debt. Specifically, someone opting for an average fixed rate lifetime mortgage today would save £40,816 in interest over a 15-year period and £73,968 over a 20-year period compared to a similar customer seven years ago.

What's more, these savings over a 20-year period would rise to £135,309 if they were to opt for the current lowest fixed rate lifetime mortgage of 3.82%, which reminds us that no matter how low (or high) the average, it's always a good strategy to compare the market to find the most competitive deals.

Existing customers, don't despair!

New customers aren't the only ones that can benefit, as Richard explains: "The extent to which equity release interest rates have dropped in recent years has not only enhanced the products' appeal to new customers, but has also made it worthwhile for existing equity release customers to review their products."

So, if you took out a lifetime mortgage seven years ago, when rates peaked, now might be a good time to see if you can get a better deal. After all, you wouldn't stay with a mortgage or electricity provider that wasn't giving you a good rate, so why stay with an equity release provider that charges you a high rate?

"With rates at record lows and a greater number and range of products to choose from, there has never been a better time to consider equity release," concludes Richard.


Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time. Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. Moneyfacts.co.uk will receive a small payment if you use their services after you click through to their site. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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