The true expense of equity release

It’s an expensive time to be alive. Everything from pints at the pub to petrol at the pump seem to be hitting unheard of levels. Even butter can break the bank at the moment, with a certain silver-tubbed Danish brand hitting an eye-watering £9 in certain supermarkets.

Andrea Rozario | Bower
21st July 2022
Andrea Rozario new
"Defending equity release against the same old charge - that it’s ‘expensive’ - is tiresome, but it really is vital."

Inflation is hammering so many people - I mean, a tenner for some butter is just out of order - and, on a more serious note, this is all happening while UK families are under the heaviest tax burden since the 1940s.

The long tail of Covid is still wagging viciously. Now the dust has settled somewhat on the pandemic, it seems rather obvious that shutting down the entire world and forcing so many businesses to grind to a halt would have a knock-on effect. And here we are. How long this shadow of Coronavirus will stretch is still yet to be seen - but I imagine we are still nowhere near the end.

Tons of industries have taken a hammering over the last few years - especially the poor souls in travel, tourism and hospitality. Hopefully now that nearly all of us are jabbed up to the eyeballs, these sectors and many more can get back on their feet.

For the housing market, the pandemic has been odd and unpredictable. I think many, if not most, assumed that Covid would lead to a crash, or at least a levelling off of house price inflation. But this seems to have not occurred. Yes, the stamp duty holiday certainly helped at first, but even after this came to end last year the market has kept on growing. Good news for homeowners in these uncertain times, but bad news for people looking to make that first step.

For my trade, equity release, the pandemic has been a period of consolidation. Growth has not tracked pre-pandemic years, but in 2022 we are back on track. What’s more, the solidity of the property market has helped current lifetime mortgage holders feel more secure and made prospective customers look upon their home as their potential saviour. So, post-Covid, equity release like so many other industries will be on the charge. And this is actually already happening: 23,395 customers both new and old tapped into their property wealth with equity release in just the first three months of this year, a new quarterly record.

But that’s not to say that there won’t be bumps in the road and equity release is far from finished with its battle against the naysayers. Even now, after such success and growth in our industry, I still see us written off as an ‘expensive last resort’ by columnists and some so-called ‘industry experts’. It is a shame that some people - although I must admit it is an ever-decreasing number - refuse to accept that equity release in 2022 is a very different market from what it used to be. I guess it’s easier to knock things down than build them up.

Defending equity release against the same old charge - that it’s ‘expensive’ - is tiresome, but it really is vital. Those still not seeing the lifetime mortgage light will point to interest rates, and I’m sure they will be doing so aggressively as rates have hit a six-year high in the last few months.

Of course, interest rates are a critical concern for both customer and adviser alike. And yes, I would like to see them come down once again. But to label something as ‘expensive’ we must surely make a comparison? Well, the one that is always brought up, perhaps understandably, is a comparison with normal residential mortgages. How do they compare with a lifetime mortgage? Well, on the face of it and in terms of just the rate they look far cheaper - 1% versus 5% is hardly a fair fight. But this isn’t the ‘gotcha!’ moment so many think it is.

No, this isn’t a fair fight because to compare the rates on a lifetime mortgage with the rates on traditional mortgage is like comparing apples and oranges. The products - although both mortgages - are chalk and cheese when it comes to the rate and design. One demands immediate repayment, the other demands nothing. And yet it’s the former - the one that demands immediate repayment - that is seen as the cheaper option yet this comparison fails, as ever to take in the complexities and safeguards of the lifetime mortgage.

The truth is that equity release is very different to a mainstream mortgage, and the interest rates are commensurate with that difference. So ultimately, when everything around us seems to be more expensive and the cost of living crisis drags on, let’s get our facts right on what costs what and why.

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