Retirees with equity release could save money with an equity release remortgage

Those who have borrowed money using equity release may find that an equity release remortgage could now significantly reduce the cost of this debt and help to protect the value of their property as part of their estate.

Borrowers can reduce the interest cost of their lifetime mortgage (the most common type of equity release) because their interest rates have been steadily declining for many years. The average fixed rate for equity release has dropped from 7% 10 years ago, to below 5% in July 2019 and now sits at 4.27% today. Our latest data shows that one of the lowest fixed rates available for equity release is 2.6% APR for the lifetime of the loan. This is compared to a standard five-year fixed rate remortgage, where the lowest rate is currently 2.8% APRC.

Paul MacDuff, director of equity release advisers MCB Financial Services, explains how borrowers could save substantial sums in interest costs by switching their equity release mortgage to a new lender or product.

“My client had taken out £35,000 using a lifetime mortgage in 2015 and a further drawdown of £8,000 in 2017. Their current interest rate was 6.24% per annum, whereas they could now qualify for a lower rate of 2.94%. The total outstanding balance was £55,000 and included an early repayment charge (ERC) from the lender. Switching to the lower rate including the ERC would save the borrower £20,370 in lower interest costs over 10 years. “

Equity release has continued to be a popular source of retirement income, with lending in quarter-one 2020 reaching £1.06bn compared to £936m in the same quarter 2019. Many borrowers have chosen to use equity release to fund their retirement due to lower interest rates and the rules that allow pensions to be inherited by their loved ones without incurring Inheritance Income Tax. Those who already have a lifetime mortgage can protect the value of their estate by reducing the cost of the debt, a remortgage to a lower rate reduces their interest costs, and thereby reduces the amount of debt that needs to be repaid after their death.

Lockdown is expected to reduce the value of equity release loans due to restrictions on house valuations and the inability to receive face-to-face advice. Equity release lenders have responded by offering automated valuations (AVMs), and brokers have adjusted to providing advice by telephone and video conference to meet with social distancing requirements. These changes have meant borrowers can continue to access equity release, whether it’s for the first time or to reduce the cost of their existing equity release borrowing.