Equity release rates hit highest level in six years

According to Moneyfacts, average lifetime mortgage rates hit a six-year high of 5.63%.

The financial data group says these loans are at their highest rate since August 2016 (when they were 5.76%), and when there were 88 options in the market.

He adds that this is the first time that lifetime mortgage rates have exceeded 5.00% since April 2019, when they hit 5.09% in a market containing 187 options.

In July, average lifetime mortgage rates hit 5.63%, with 631 transactions in the market, according to Moneyfacts.

The move follows the Bank of England raising interest rates five times in a row since December to tackle inflation, which at 9.1% is a 40-year high. The bank’s base rate is 1.25%.

The latest data from the Equity Release Council shows that clients unlocked £1.53bn of property wealth in the first three months of this year. That was up 14% from £1.34bn in the final quarter of 2021 – previously the busiest quarter on record – and 34% year-on-year from the first quarter of last year.

A majority of new customers chose direct debit, 54%, over a lump sum payment option, according to the Equity Release Council.

Moneyfacts finance expert Rachel Springall said: “Retirement plans could be hampered by the rising cost of living and consumers may consider ways to bridge the gap, such as releasing wealth tied up in their home.

“Interest rate hikes were widespread across the lifetime mortgage industry throughout June 2022. The average interest rate charged rose above 5.00% and is at its highest level in six years. .

“The choice of lifetime mortgage options has remained relatively stable since the start of the year, with around 630 offers to choose from today, but the abundance of options on offer far exceeds what was available in 2020.

“There can be a variety of reasons consumers decide to use their home equity to cover costs, such as settling debt or funding a shortfall. According to a recent study by LV=, more than one in 10 pensioners still had mortgage debt when they retired, and pensioners saw their cost of living increase by £163 per month (nearly £2,000 per year).

“Instead of drawing income from their pension fund to cover unexpected living expenses, a lifetime mortgage may be an option, but it is essential that consumers seek advice to weigh all the details before committing.

“The cost of living crisis could prevent family members from moving up the property ladder and, where appropriate, capital release may be an appropriate option for consumers who wish to pass on a legacy prior to their children.

“A drawdown option may be attractive to owners who only need to release a little wealth as they need it in this case, which will also mitigate the interest incurred. According to the Equity Release Council, in the first quarter of 2022, 54% of new customers opted for lifetime mortgages with drawdown.

“Amid rising interest rates, consumers may feel pressured to take out a mortgage for life, but it’s imperative they seek independent financial advice to ensure it’s the right choice for them. and their relatives.

“Owners may find that they can avoid taking the wealth out of their property completely, but if this is the most appropriate choice, they should be aware of how capital release works and the impact it has. result.”

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