In Focus: Home ownership  

Equity release interest ‘drops off cliff’ in face of 8% rates 

Equity release interest ‘drops off cliff’ in face of 8% rates 

Advisers have reported a significant drop in equity release business as clients hesitate to lock into deals at 8 per cent interest rates in the hope they will come down.

Despite residential mortgage lenders cutting their rates back closer to 5 per cent in recent weeks, equity release products have remained around 8 per cent. 

Lenders are also loaning less on equity release products because their no negative equity guarantees mean if prices plummet - which they are expected to do by anywhere from 10 to 30 per cent - there is more risk involved.

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Jane King, chartered adviser for Ash Ridge Financial Services, said her equity release business “has dropped off a cliff”.

She added: “Nobody wants it at those rates. They’re taking a ‘wait and see’ attitude.”

Advisers said they have been quoted rates by lifetime mortgage lenders anywhere between 6 and 8.5 per cent, depending on the loan-to-value.

The average rate this month on equity release products is 8.13 per cent, according to Moneyfacts.

Rachel Springall, finance expert at Moneyfacts told FTAdviser a number of lifetime mortgage products have been withdrawn in recent weeks.

“We hope this will be a temporary measure amid interest rate uncertainty,” she said.

David Penney, director and chartered financial planner at Penney, said he has discussed equity release with clients. 

While he does not provide mortgage advice, Penney does discuss options with clients.

“At 8 per cent plus, the issue for me is the rate. It’s a difficult one - will people regret locking in at 8 per cent if rates fall next year? Or might they end up at 10 per cent next year if rates increase? 

“We always tell people not to time the market, but I’d be inclined to wait and see.”

One of the main reasons Penney’s clients are weighing up equity release is that they want to give money to their children now while they need it, versus in years’ time.

This reason for equity release grew following the pandemic, though home improvements are still the most popular reason.

Some clients in less favourable positions are using equity release to help them pay energy bills and fend off repossession.

Lenders have seen their equity release arms multiply this year against a backdrop of rising rates.

This week (November 9), Aviva said the value of its new equity release business had grown nearly seven times in the first nine months of this year compared to 2021.

This growth does not take into account the rate rises, which took hold in October following former chancellor Kwasi Kwarteng’s ‘mini’ Budget.

While the value of loans on its books will increase, the lender - like many others offering lifetime mortgages - could see new business stagnate if clients are hesitant to lock in such high rates for life.