Equity Release  

Equity release rates hit six-year high

Equity release rates hit six-year high
Nataliya Vaitkevich/Pexels

The average interest rate charged on a lifetime mortgage has surpassed 5 per cent and now sits at its highest point in six years.

Interest rate rises were “widespread” across the lifetime mortgages sector throughout last month, according to the latest Moneyfacts data.

Sitting at 5.63 per cent in July, the average equity release rate is now the highest it has been since August 2016 (5.76 per cent).

Finance expert at Moneyfacts, Rachel Springall, said consumers “may feel pressured” to take out a lifetime mortgage, against the backdrop of inflation and climbing living costs.

Retirees have on average seen their living costs increase by £163 per month - nearly £2,000 a year.

“It is imperative they seek independent financial advice to ensure it’s the right choice for both them and their relatives,” she said.

“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.”

Equity release allows consumers to use their home as a security for a lifetime mortgage or home reversion plan.

In recent years, providers have noted an uptick in those using the product to draw down equity to help younger generations get on the housing ladder, or to subsidise retirement income.

Figures from the Equity Release Council showed the majority of new lifetime mortgage customers chose drawdown in the first quarter of this year (54 per cent) over a lump sum option.

“Instead of drawing income from their pension fund to cover unexpected living costs, a lifetime mortgage may be an option,” Springall explained.

“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.”

The equity release market has grown significantly over the past six years, with the number of products available up six-times on what they were. 

Back in August 2016, 88 options sat on lenders’ shelves versus 631 options today.

But in recent years, the Financial Conduct Authority has aired its concerns around the quality of advice being given to homeowners on equity release products..

Last week, the regulator said some advisers could be subject to conflicts of interest if they have relationships with certain providers.

It has also said it needs to look again at the market to make sure it is working in the best interests of consumers, after sounding alarm bells back in 2020 over unsuitable equity release advice following a review.

The Financial Services Consumer Panel has published a study into the sector, which found advisers using “persuasive sales techniques” and language used by advisers which “inhibited participants’ understanding” of the product.

ruby.hinchliffe@ft.com