What will happen to equity release interest rates in 2024?  

The Question

I’d be interested in hearing your thoughts on what might happen to interest rates for equity release this year. I realise no one has a crystal ball but as a homeowner who is looking at equity release I would be keen to understand a bit more about what I’m to expect. Thanks for your help.

Mark’s Answer

Thank you for getting in touch, and I can confirm that your enquiry is top of my mailbox question requests. I agree with you that I do not have a crystal ball, though I have recently written an article on interest rates that you may wish to read. Also, feel free to sign up to similar articles by emailing your request to mail@equityreleasesupermarket.com

Within the article I commented 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.

The table below highlights how the best product interest rates have changed during 2023, alongside gilt rates* for comparison.

Equity release rates are expressed as monthly equivalent rates or MERs which shows the rate of interest added over the year, added to the amount you borrow each month.

As you can see, January 2023 started out at 5.99% with rates decreasing to 5.24% by April. With greater economic uncertainty interest rates and gilts increased for the rest of the year until this November, reaching 6.10%

In December we have started seeing a sharp decrease in both gilts and interest rates and the lowest rate on 22 December 2023 is 5.28% – we may see this trend continuing in 2024.

Although average rates are currently above 6% there are many plans available below this. We are also seeing lenders increase their loan-to-values, meaning the amount that can be borrowed is also increasing.

Does the interest rate matter?

Yes of course. The rate will determine the interest that’s applied and if the customer chooses not to make any repayments, it will determine how much they can pass on to their beneficiaries when the plan ends.

However, 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 on the market, each with different features 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 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.

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 continue your research, and you can contact them via livechat or our freephone number on 0800 802 1051.

Alternatively, you can use our smartER research 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