There has been a dramatic slowing up in the pace of lifetime mortgage switching lender for a better deal, falling 34% this year, according to later life mortgage broker Responsible Life.
Retirees switched 331 lifetime mortgages to new providers in the first quarter of 2021, compared with 498 in Q1 2020 according to latest figures obtained from the Financial Conduct Authority (FCA).
The pace of switching fell 28.9% in the 12 months to the end of March 2021, dropping from 1,824 to 1,297.
Responsible Life says that one likely explanation for the slowdown is that many borrowers seized the opportunity to switch when rates dropped to between 3% and 4%. This created a spike in activity driven by those who wanted to take advantage of lower rates while they lasted.
However, the pace at which homeowners are rebroking their lifetime mortgages has still risen 44% in two years, up from 230 in Q1 2019 just as the market started to see a big jump in remortgaging. Currently, around four in every 100 equity release customers are switching each year, out of more than 300,000 outstanding mortgages.
Responsible Life has warned that witching mortgage lender can be counterintuitive because it often requires borrowers to pay significant Early Repayment Charges (ERCs). This is especially true in the lifetime mortgage sector, where products are designed to last a lifetime and carry higher ERCs as a result.
However, it can still be well worth remortgaging. An 82-year old Responsible Life customer switched provider so he could save £16,800 over eight years, rising to £37,000 by the time he turns 95.
Steve Wilkie, executive chairman of Responsible Life, said: “Lifetime mortgages don’t stop people switching to cheaper rates and it’s not just older borrowers who can benefit.
“Long-time customers may have seen rates fall furthest but younger retirees have the added advantage of a longer remaining mortgage term.
“Persistent misconceptions around the switching of lifetime products could be behind the slowdown in remortgaging that we’ve seen so far this year. The key message for consumers is that larger ERCs aren’t necessarily an obstacle to saving money and the younger you are, the less the interest rate needs to fall for switching to pay dividends.
“Lower rates have, in part, been due to the virtuous circle of greater volumes and increased competition. The popularity of lifetime mortgages has exploded in the last five years and product flexibility has never been greater.”