Equity release rates on the increase

Latest analysis by Moneyfacts.co.uk has found that over the last three months, over half of the 11 lenders in the lifetime mortgage market have increased interest rates within their range.

These lenders are Aviva, Hodge Lifetime, Just, LV=, Legal & General and the Vernon Building Society.

Rachel Springall, spokesperson at Moneyfacts.co.uk, said: “The equity release market has listened to the consumer demand for more flexibility, and, as a result, lifetime mortgages are becoming more popular, so much so, that record amounts are being unlocked through equity release.

“This year has also seen an influx of competitive rates, with the average lifetime mortgage recording its lowest ever level in July (5.03%). However, lenders are now starting to factor in interest rate rises, with six out of 11 providers upping their rates over the last quarter, some more than once, meaning the average rate now stands at 5.10%. In fact, the average rate for mortgages ranging up to 50% loan-to-value has risen from 4.67% to 4.83% over the same period.

“Beyond the rates, lifetime mortgages may well be attractive to those who had considered downsizing, but are looking to avoid the hassle of moving and the costs involved, such as paying stamp duty. It is little wonder then that 82% of the lifetime mortgage market provide a free valuation. There are now more deals without a product fee too, however these deals still account for less than half the market share (41%).

“It is a misconception that equity release is aimed solely at the cash-poor or for those looking to plug the gap of their later life care costs. For instance, some consumers may be considering these products for gifting reasons. It’s little wonder then that our own independent study revealed that two-thirds of consumers believe they have a clear understanding of equity release.

“It’s encouraging to see the market adapt to create more flexible products, such as those that provide a drawdown option to suit those looking to draw cash as and when they need it rather than take a large upfront lump sum. It’s easy to see why this option would be popular, as more traditionally, any remainder of a lump sum could well have been stashed in a basic savings account for later withdrawal.

“Whilst consumers need to seek advice from an independent financial adviser that specialises in equity release, it can be beneficial to find one who also advises on mortgages, so they can work out the best point of action by going through all the latest options to hit the market – including retirement interest-only mortgages, for example.”

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