Equity release average rate reaches six-year high | moneyfacts.co.uk

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Rachel Springall

Rachel Springall

Finance Expert & Press Officer
Published: 04/07/2022
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Interest rates are rising within the equity release market. The average lifetime mortgage, otherwise known as an equity release product, now stands at 5.63%, the highest it has been since August 2016.

In fact, the average rate today has now breached 5% for the first time since April 2019.  

Rising in tandem with these rates are the number of people looking to use some form of equity release. Figures from the Equity Release Council for this year’s first quarter saw customers unlock £1.53 billion of property wealth in total. This was up 14% from the fourth quarter of 2021 – previously the busiest quarter on record.

Much of this could be owed to retirement plans hindered by the rising cost of living, forcing some consumers to consider new ways to plug the gap, such as by releasing wealth tied up in their home.

Indeed, further research from the Equity Release Council found that the majority of new customers have chosen drawdown over a lump sum option.

Why are consumers using equity release?

There may be various reasons why consumers decide to use equity in their home to cover costs, such as clearing debts or funding an income shortfall.

According to a recent study by LV=, more than one in 10 retirees still had mortgage debt when they retired, and retirees have seen their living costs increase by £163 per month (nearly £2,000 a year). Instead of drawing income from their pension fund to cover unexpected living costs, a lifetime mortgage may be an option, but it is vital consumers seek advice to weigh up all the details before they commit.

The cost of living crisis could hinder family members from getting onto the property ladder, and if appropriate, equity release can be a suitable option for consumers looking to pass on earlier inheritance to their children.

In the midst of rising interest rates, consumers may feel pressured to take out a lifetime mortgage, but it is imperative they seek independent financial advice to ensure it’s the right choice for both them and their relatives.

Homeowners may find they can avoid pulling wealth out of their property altogether, but if it is the most appropriate choice then they must be conscious of how equity release works and its resulting impact.

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