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.”
