Lifetime mortgage rates have begun to creep up as more investors exit the gilt market and gain confidence in the UK economy post-pandemic.
Last week, the lowest equity release rates climbed from 2.66 per cent on Monday to 2.8 per cent on Friday, according to Moneyfacts, shifting the needle by 14 percentage points in just five days.
Advisers are concerned the cheapest rates could soon tip over the 3 per cent mark.
David Forsdyke, who heads up Knight Frank’s later life finance advice arm, told FTAdviser: “There’s been a constant stream of notifications from all providers over the course of the last week forewarning advisers to prepare their clients for higher rates.
“Investors exiting the gilt market is a good sign for the economy, but for older borrowers this isn’t good news.”
Forsdyke reckons “more rises are expected”, after what he deemed to be a “sharp rise” in a “short space of time” last week.
“I think rates will creep above 3 per cent before the end of the year. We’ve had two years of borrowing below 3 per cent. I remember thinking in 2019 that the market had hit a milestone.”
Unlike the mainstream mortgage market, rates in the lifetime mortgage industry tend to follow the long-term gilt and fixed interest markets.
Gilt yields have been rising sharply as confidence returns to the economy. The 20-year Gilt Index climbed from around 0.94 per cent at the beginning of August to 1.5 per cent on October 11.
“It’s been quite a quick response from the industry to the gilt market,” said Forsdyke. “If people don’t act now they will face higher interest rates.”
But the Knight Frank executive was quick to caveat this. “I’m not suggesting consumers rush into equity release, and the interest rate they pay is not necessarily the most important factor, but many consumers who have already looked into this will be taking some time deliberating.
“They’ll be discussing it with their family and trusted advisers, all of which could see them lose out on the current keen rates. So I guess the message to those people is to act quickly if equity release is clearly the right thing for them.”
On how the sector will be impacted by higher rates, Forsdyke said equity release will continue to emerge as a key financial planning tool “regardless of movements in interest rates”.
In the high net worth space, which Knight Frank’s later life finance arm specialises in, Forsdyke said he is seeing “more and more financial planners and wealth managers coming to the firm seeking expertise in the area.
“They realise it is useful for their clients,” he added.
ruby.hinchliffe@ft.com
