Analysis of Age Partnership’s management information – which looked at over 21,000 equity release customers from the last seven years – reveals the average rate for an equity release lifetime mortgage has fallen to a seven-year low.
As of August, the average rate for equity release lifetime mortgages seen so far in 2015 is 5.82%. This has dropped considerably from the average rate of 6.70% seen in 2009, when Age Partnership started tracking rates.
At the same time, average property prices in the UK have reached a record high of £272,000.
Simon Chalk, equity release expert at Age Partnership, commented:
“In the last seven years, the fortunes of Britain’s mature homeowners have truly turned around. Whereas 2009 saw house prices falling in the wake of the recession, we are now seeing house prices reach new peaks, as healthy demand for homes fuels property price growth. Simultaneously, equity release lifetime mortgage rates have fallen sharply, meaning the plans on offer are appealing to more homeowners seeking a bit of extra income or a lump cash sum than ever before. The number of providers offering equity release plans has also widened, and with trusted household names like Legal & General launching earlier this year, customers are enjoying some of the most competitive deals we’ve ever had.
“Unlike ordinary mortgages, equity release lifetime mortgages offer other benefits which help to take the financial strain off older borrowers too. Firstly, rates are typically fixed for life, meaning borrowers don’t need to worry about how a rise in the base rate will affect their mortgage. Secondly and most importantly, plans that meet the standards set out by the Equity Release Council come with a no-negative equity guarantee meaning the amount to repay the equity release plan on death or entry into long term care can never exceed the value of the property itself, eradicating the risk of passing any debt from the plan over to loved ones. Finally, the borrower doesn’t need to worry about making any regular interest repayments, although some products do offer an option to make capital repayments of up to 10% per year if this is preferred. There really has never been a better time for over-55s to take out an equity release plan, with rates low whilst housing wealth continues to grow.”
The data also shows that rates have reduced amongst all ages of equity release customers, with mature customers particularly benefitting.
Age Partnership’s average 65 year old customer currently has a rate of 5.95%, compared to a customer 10 years older who benefits from a lower rate of 5.74%. However, both ages have seen a drop in rates to record lows since 2009 when rates were over 6.60%.
Simon Chalk continued:
“Borrowers who have been shocked to learn that as they’ve become older, ordinary mortgage lenders simply don’t want to know, are often pleasantly surprised to find that the exact opposite is true for equity release; the older you are, the more you can borrow, and as our research clearly shows the rates can be even better value. So anyone put off by higher rates, or not being able to release enough cash a few years ago, might well find now is a perfect time to take advantage of such attractive offers.”
House price growth is also helping to counteract the interest owed for taking out an equity release plan, meaning equity release customers can hang onto more of the equity in their house for longer.
Looking at the typical Age Partnership customer this year to date, they have on average released £43,972 at an average fixed rate of 5.82% on a property worth £252,951. By releasing less than 20% of the value of their home, compared to an average maximum available of 34%, they are evidently being sensible, taking just enough to meet whatever their needs may be. As the research table below shows, a realistic 2% house price growth assumption each year will ensure they have over 80% of the remaining equity left to leave to loved ones when they die.
If house prices were to rise at just 2% per annum – much lower than the current growth of 5.7% per annum – the average property value would have risen to £320,803 by 2027. Over the same time, the size of the equity owed would have risen to £86,694. However, this would leave total remaining equity of £234,109, up from £208,979 initially, showing the equity owned in the house would not be eroded in monetary terms.
Simon Chalk concluded:
“In the past seven years, we have seen house prices shoot up to record levels and demand shows no sign of slowing down. For those looking to tap into some of their housing wealth for retirement, the rising value of their home can help offset the interest owed through equity release, which should ease fears that some have of eroding their housing equity.
“Speaking to an adviser can help clear up any qualms you may have in what the process involves, as well as looking through the different options for each individual.”
