Equity release rates now lower than at the start of 2020 | moneyfacts.co.uk

Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 03/09/2020

The average rate for equity release dropped to 4.21% on 3 September 2020, only fractionally above the lowest ever average rate seen since 2007, at 4.13% in March 2020. Those wanting to release cash tax-free from their home to help fund retirement, home improvements or to pay off their mortgage can now do so at some of the most competitive rates ever seen. In addition, those with existing equity release could also potentially save thousands by switching to a new lower rate equity release deal. We explain more below.

What’s happened to equity release rates in 2020?

The most common form of equity release is a lifetime mortgage and fixed rates for these started the year at an average of 4.55%. Initially rates fell each month up until April when equity release lenders needed to consider the potential impacts of the Coronavirus pandemic. Rates increased in April and May to 4.34% before returning to a decline from June through to September.

The average interest rates for lifetime mortgages

 

September 2015

September 2019

January 2020

3 September 2020

Fixed rates

6.12%

4.89%

4.55%

4.21%

Source: Moneyfacts.co.uk

 

The number of lifetime mortgages available

The choice of lifetime mortgages available to borrowers reached its highest number since 2007 at 455 in July 2020 compared to 395 at the start of the year and now stands at 405.

 

September 2015

September 2019

January 2020

3 September 2020

Fixed deals

43

361

395

405

Source: Moneyfacts.co.uk

You must take advice before taking a lifetime mortgage

Those considering using equity release must speak to a qualified equity release adviser first, not only is this a requirement of the regulations that govern equity release but is also important due to the risks and the future interest costs involved when taking out equity release.
This is because a lifetime mortgage is a loan and the property is used as security to pay back the debt in the future. However, unlike a mortgage, a lifetime mortgage does not need to be paid back until the borrower goes into long term care or passes away. The interest charged on a lifetime mortgage rolls up over time and this means that it is added to the original amount borrowed and to any interest accrued. As a result, the amount originally borrowed will increase over time, unless the borrower chooses to pay all or some of this back to the lender. Borrowers need to check if their lifetime mortgage will allow them to pay off their debt.
Borrowers also need to make sure they understand that using equity release reduces how much their beneficiaries might inherit from the sale of their property when they die. Lifetime mortgages do offer a no negative equity guarantee meaning that when the property is sold those inheriting the estate will not be responsible for any shortfall between the sale value and the debt outstanding.

Find our more about lifetime mortgages

Find out more about lifetime mortgages in our guide to equity release and read what to expect when you speak to an equity release adviser.

Save thousands when switching your equity release

Those who took out equity release at the start of 2015 would have faced average fixed interest rates of between 5.88% to 6.39%. The average interest rate is now at 4.21% and the most competitive lifetime mortgage charges 2.28% MER. With such an interest rate reduction, equity release borrowers could save significant sums, often into the tens of thousands when totalled over 10 years by switching their lifetime mortgage to a new lender. However, early repayment charges will often apply and should be considered alongside any potential saving.


Our preferred equity release broker HUB Financial Solutions can help you to calculate how much you might be able to save, as well as making sure that switching your equity release deal is the right decision for you.

How much can you borrow with equity release?

The amount you can borrow will depend upon your lender, the product and your age. Now the maximum loan-to-value (LTV) available ranges from 3.5% to 31% at age 55, with the overall average maximum LTV across all products at 48%. The current maximum available is 63% LTV.

What are the lowest rates for a lifetime mortgage?

Legal and General Home Finance currently have the lifetime mortgage at the lowest interest rate of 2.28%. The Premier Black lifetime mortgage offers a minimum loan amount of £100,000 and a fee of £599. Borrowers need to be 55 or over, and the amount that can be borrowed starts at 11% LTV at 55 up to 55% LTV at age 85. This lifetime mortgage also allows drawdowns, letting borrowers take the cash as and when they need it and only have interest applied when they take the money.

Before taking out equity release borrowers should consider speaking with an equity release adviser to ensure that it is the right option for their individual circumstances.

Disclaimer

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.

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