Growing demand from consumers for equity release has driven ‘significant’ expansion the market and greater choice, analysis of the product has found.
Data from Moneyfacts.co.uk revealed there were now more than 200 lifetime equity release options available, which is five times more than in 2014 when there were only 40.
In the last year alone the market has increased by 50%, said Moneyfacts, and the number of deals available has reached its highest level ever.
Rachel Springall, finance expert at Moneyfacts, said this showed that lenders were primed and ready with a variety of deals for prospective borrowers.
Research by providers in the equity release market has shown growing debt in later life, paltry pension pots and the rise of the Bank of Mum and Dad, amongst other factors, was contributing to the rise in older homeowners keen to unlock the cash from their homes.
Springall said: “It is worth keeping in mind that that equity release is not solely aimed at the equity rich but cash-poor or for those looking to plug the gap of their later life care costs.
“These types of mortgages could be an option for those hoping to soften any Inheritance Tax blow while lifetime mortgages may also be an alternative to borrowers who have considered downsizing, but who do not want to move and pay Stamp Duty.”
Drawdown popular
The analysis also revealed equity release customers were commonly using drawdown, which is where cash is released over time, rather than taking the money as a lump sum. This was in line with the Equity Release Council’s data, which revealed last year drawdown was more popular, with two thirds of new customers choosing this option.
Interest rates, fees and charges
Moneyfacts also looked at interest rates for equity release products and found they had fallen slightly since last February from 5.27% to 5.24%.
Average equity release rates hit their lowest point in 2018 when the average deal was coming in with an overall rate of 5.04%. However, Moneyfacts said borrowers could secure a fixed deal for less than 4% if they shopped around.
Nearly 80% of the products on the market charge product fees. Borrowers should also consider early redemption charges, Moneyfacts warned.
Springall said: “If borrowers are not careful, they could enter a deal where a penalty applies for as long as 10 years into the arrangement. Indeed, some consumers may have to pay as much as 10% of the advance in the first five years.”
