Equity release rates tumble 41% in five years: Responsible Life

The average rate paid by life mortgage borrowers has fallen 41% or 2.39 percentage points over the past five years, saving £ 10 billion, according to Responsible Life’s analysis.

Clients of the stock release paid an average of 3.4% last year, up from 5.79% in 2015, according to the broker.

Calculations are based on data released as part of an access to information request submitted to the FCA.

Falling release rates mean that even those who have only taken out their life mortgages relatively recently are being urged to consider whether they could save money by remortgage.

Average rates stood at 4.17% in 2019, which means they are still down almost a fifth by 2020.

According to Responsible Life, lower rates and soaring house prices have resulted in a “middle class rush for lifetime mortgages.”

The number of sales has increased by 74% in five years, from 23,728 in 2015 to 41,286 in 2020.

The combination of low rates and high real estate values ​​means that many borrowers with lifetime mortgages could save huge sums by switching, even after paying a prepayment charge (ERC).

ERCs can be particularly high in the equity release industry because the products are designed to last a lifetime.

But many can still make significant savings by remortgage.

Responsible Life highlights the case of retiree Patrick Buckingham, 82, who switched lenders and is now on track to save £ 16,800 over the next eight years.

If he lives to age 95, he will save a total of £ 37,000 through the change.

Remortgage may make sense for younger borrowers as they have more time ahead of them to collect their savings and offset the cost of the ERC.

On the other hand, older borrowers may have taken out their original loan when rates were much higher, so even if they have less time, the rate differential can still generate huge savings.

Most lenders’ LTV bands have also improved in recent years, which means borrowers can generally take out more now, especially when you add to that the impact of rising house prices.

Responsible Life Executive Chairman Steve Wilkie said, “Retirees have increased their rates in recent years as the popularity of lifetime mortgages has exploded.

“This FCA data confirms that not only have advertised rates gone down, but the actual rates that customers have been able to get have also collapsed.

“It’s extremely important.

He says that just because the advertised rates go down does not mean that all borrowers will be able to access these rates, because they may find themselves excluded by the lender’s affordability criteria.

“This proves that the market’s progress in the release of interest rate shares is not just a facade.

“Older homeowners have been able to feel the benefits of lower rates by the thousands and are voting with their feet when it comes to financial planning for retirement. “

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