The Bank of England Governor Andrew Bailey says there’s still a ‘hangover effect’ in the mortgage market following last September’s mini-Budget.
His recent remarks to the Treasury Committee stressed that the crisis in the mortgage market was over but that borrowers are feeling the effects.
That is clear from Moneyfacts data which shows average rates for two-year and five-year fixed mortgages were around 4% before September last year but are now around 5.4% although there are cheaper deals available.
Mortgage rates, however, do not tell the whole story as borrowers face a host of other pressures due to what is happening in the UK economy.
They also have to contend with the general rise in the cost of living. Energy bills are still high and while the inflation rate might have peaked and even be falling it is still 10.5% which has a major impact on household budgets.
It all adds up to extra costs for homeowners and the squeeze is particularly acute for over 55s. Key Later Life Finance’s own data shows nearly a third (30%) of over 55s believe their ability to repay their mortgage will be hindered due to the cost-of-living crisis.
That equates to around 879,000 people who say their mortgage plans are at risk of being derailed which is a major issue when they are planning for retirement while also potentially trying to help children and even support their own parents.
How can equity release help over 55s with debt and financial goals?
New equity release lending in 2022 hit a record high of £5.58 billion. Once additional lending to customers with existing lifetime mortgages in place through drawdown and further advances is added to the mix total lending was £6.3 billion.
The figures demonstrate a healthy market driven by rising customer demand and underpinned by an attractive range of modern, flexible products.
With customers releasing an average £106,806 last year, use of housing equity is helping thousands of customers improve their quality of life, manage debt and achieve financial aims which might have seemed beyond their reach in retirement.
It enables parents and grandparents to support the younger generations get onto and advance up the housing ladder while ensuring their own homes are retirement ready.
But increasingly equity release customers are using the money to manage debt they are taking into later life, mortgage debt in particular.
Around £3.3 billion of the property wealth release last year was used to repay money that has been borrowed with around half of it used clear existing mortgages. Data shows around 12% went on clearing unsecured debt such as credit cards.
Flexibility: What are the features and benefits of equity release?
Interestingly, around £1.25 billion of the £3.3billion used for debt management went on re-mortgaging existing equity release plans – either onto lower rates or with the purpose of raising more money.
Equity release products are no longer necessarily for a ‘lifetime’ and the increased flexibilities we’ve seen in this market make these products suitable for a wider range of customers and circumstances than ever before.
Indeed, equity release has evolved significantly since the last financial crisis and modern lifetime mortgages have embedded within them a host of valuable features and benefits.
Arguably one of the biggest protections is the no negative equity guarantee – customers and their beneficiaries cannot end up owing more than the value of the home – which is reassuring in a housing market which is starting to show signs of a slowdown.
Rates are also fixed for the lifetime of the loan which can be comforting against a backdrop of rapidly rising interest rates.
All customers have the guaranteed right to live in their home until they go into care or pass away and downsizing protection means they can take the equity release plan with them if they move to a suitable property.
In addition, unlike with a traditional mortgage, there is no affordability assessment when taking out equity release and customers do not need to take all the money in one lump sum as there is the option to drawdown money as and when required.
There is also the option to manage borrowing to avoid the balance building up with customers able to serve interest or to make ad hoc capital repayments if they want to. On most plans, they can stop or start these repayments depending on personal circumstances.
Later life borrowing isn’t right for everyone, but homeowners aged 55-plus need to be aware of all of their options – especially when budgets are squeezed.
The first step is to speak to a specialist adviser who can talk them through all their options including downsizing, equity release and other later life lending products.
Will Hale is CEO at Key Later Life Finance
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