Average equity release rate sub-5% for first time

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Latest research from Moneyfacts.co.uk has revealed that the average equity release rate has dropped below 5% for the first time, since the organisation’s electronic records began in 2007.

The average equity release rate for fixed and variable rate mortgages now stands at 4.99%, down from 5.10% a year ago and 6.11% five years ago.

The choice of deals on the market has also increased, as there are now 207 lifetime equity release deals available, up from 164 a year ago and just 48 five years ago.

Rachel Springall, spokesperson at Moneyfacts.co.uk, said: “The equity release market has evolved considerably over the years, with choice increasing and rates reducing as a result – the market has become much more accommodating to prospective borrowers. The average equity release rate for fixed and variable rate mortgages has dropped to below 5% for the first time on record and there are now more than 200 deals available to choose from.

“While rate alone should not be the deciding factor when choosing a lifetime mortgage, it is still a positive indicator that competition is rife in the market. The whole package of an equity release deal must be weighed up, especially any fees included. As 66% of the market charges a product fee, borrowers need to be wary of the upfront cost of any deal.

“Flexibility with drawing funds is also a key point to consider, as shown in the Equity Release Council’s Spring 2019 report, drawdown is more popular with borrowers than taking a lump sum, with two-thirds (64%) of new customers opting for a drawdown lifetime mortgage in the second half of 2018. By choosing a drawdown product, consumers could potentially save interest compared to taking a lump sum.

“The reasons why borrowers choose an equity release deal can vary. Whether it be to fund any gap for later life care costs, to reduce the blow of an Inheritance Tax bill, or just to make retirement more comfortable, it is vital consumers get independent financial advice to ensure it is right for them.”

David Burrowes, chairman of the Equity Release Council, added: “[The] Q1 2019 data shows lifetime mortgages making their biggest contribution to mortgage market activity since records began. Comparing the financial year 2018/19 to the previous year, lifetime mortgage activity has also seen the biggest increase – 20% – compared to other areas of the market, including house purchase and remortgage activity.

“The equity release sector has grown in recent years because it meets a wide range of social and consumer needs among the UK’s ageing population¹. Equity release is also underpinned by robust industry standards to ensure a safe and reliable market for consumers, who are guaranteed three levels of protection including specialist financial advice, independent face-to-face legal advice and clear product safeguards.

“Although equity release is viewed as entering the mainstream among later life lending products, it remains the case that the emergence of lifetime mortgages as a more common product choice has been from a low base, and still, currently, accounts for less than 2% of overall activity.”

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