The Question
I’ve had an equity release mortgage offer but have not yet accepted it. In view of the latest news on inflation rates going down. Is it advisable to hang on to see if the rates change. I would much appreciate your advice. Thank you.
Mark’s Answer
Thank you for your question and you are right to think that as inflation falls some economists are predicting that interest rates will fall later in 2024 or 2025.
However, I wrote a recent article explaining that equity release interest rates follow the trend of the 15-year gilt, rather than the Bank of England base rate. To explain, Gilts are UK government bonds, issued to help finance public spending. The direct correlation noted is that when gilts rise, equity release interest rates follow, and vice versa.
As illustrated below over the last 12 months we have seen the 15-year gilt rate rise and fall and we have seen equity release interest rates follow this trend. It is fair and reasonable to say that equity release interest rates are broadly 1% to 2% above this gilt rate and I have no doubt that seasoned economists would provide a more detailed explanation.
However, nobody can predict when equity release interest rates will fall, and sadly it is not simply down to one measure such as a fall in inflation.
I wrote in my article that customers should not assume that the product with the lowest rate is necessarily the right one for their personal circumstances. There are hundreds of equity release products and features on the market, each with different benefits and two of the most basic features are lump sum and drawdown plans.
As the term implies, a lump sum is where the customer takes out the equity in one go. However, if a customer takes out a drawdown plan they might pay a slightly higher initial interest rate, but they only take out what they need at that time, with the option to drawdown more in the future, at the prevailing rate which could be lower or higher at that time.
Making payments to service the loan is a valuable feature, and I am aware that some customers feel that making payments is ‘all or nothing’, but this is not always the case, as a customer can make full or partial payments, and by making payments there are incentives to reduce the interest rate.
For example, one equity release provider will offer a full 1% discount off the interest rate if the customer makes a payment greater than 25% of their interest charged. Furthermore, if they later decide to stop payments they simply lose the discount, but there are no penalties.
Our independent, whole-of-market, specialist advisers who have no allegiance or tie to any individual firm, will provide you with information without obligation to help you create a bespoke plan for your circumstances and you can contact them via livechat or our freephone number 0800 802 1051.
Alternatively, you can use our smartER tool to complete your own research and enhance your insight into current interest rates, and for more information visit www.equityreleasesupermarket.com.
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
