Equity release: Fierce competition pushes down rates

That’s according to the latest market analysis from Moneyfacts.co.uk, which revealed the cost of lifetime mortgages had plunged to levels not seen since its records began.

Indeed, this month the average interest rate on both fixed and variable deals fell below 5% to a low of 4.99%.

This compares to the typical rate of 6.11% in June 2014 and 5.10% which was the average interest paid in June 2018.

Meanwhile, Moneyfacts revealed the number or products on the market has grown by nearly double in the last two years from 100 in June 2017 to 207 today. In just the last year the number of deals available has increased by more than 40.

Rachel Springall, finance expert at Moneyfacts.co.uk, said: “The equity release market has evolved considerably over the years, with choice increasing and rates reducing as a result – the market has become much more accommodating to prospective borrowers.”

Product fees

Moneyfacts explained the fact rates were going down was a sign competition in the market was rife. However, it warned anyone considering equity release that rates alone shouldn’t be the deciding factor when choosing a product.

In fact, 66% of the products on the market charge a product fee and Moneyfacts warned borrowers to look out for any upfront costs on deals they might be considering.

Flexibility

Equally, customers should consider how they would like to receive their funds. According to information from the Equity Release Council, drawdown – where cash is released bit-by-bit over time – is now more popular amongst borrowers than taking a lump sum.

Springall advised that by opting for drawdown, consumers could potentially save interest compared with taking a lump sum.

Meanwhile, Stuart Wilson, marketing director at equity release lender more 2 life, explained product innovation was ‘high on the agenda’ for many lenders and revealed there were some products available for rates as low as 3.32%.

But he thought lenders could go even further in their attempts to improve products and offer flexibility.

He said: “As more borrowers look to access the wealth tied up in their homes to meet their changing needs in retirement, a further push from lenders to design flexible products will be crucial to ensure they can cater to the customers of today.”