Interest rates on equity release products are back on the rise after plummeting to a record low in July.
Aviva, Hodge Lifetime, Just, LV=, Legal & General and Vernon Building Society have all increased rates in the last three months according to recent analysis into the lifetime mortgage market by Moneyfacts.
The hikes to products, which allow homeowners to access the equity in their homes, are likely to have occurred as more than six of the 11 lifetime mortgage lenders factor in the Bank of England interest rate rises into their pricing.
However, despite the average lifetime equity release rate rising from 5.03% in July to 5.10% this month, the products remain popular and customers can now benefit from an evolving market with greater flexibility, said Moneyfacts.
Flexible products
Rachel Springall, finance expert at Moneyfacts, said: “It’s encouraging to see the market adapt to create more flexible products, such as those that provide a drawdown option to suit those looking to draw cash as and when they need it rather than take a large upfront lump sum.
“It’s easy to see why this option would be popular, as more traditionally any remainder of a lump sum could well have been stashed in a basic savings account for later withdrawal.”
Moneyfacts explained lifetime mortgages were attractive to people who had considered downsizing but wanted to avoid the hassle of moving and the costs involved, such as stamp duty.
Indeed, it found 82% of products in this market offered a free valuation and there were now more deals without a product fee, although these represented only 41% of the market share.
Advice essential
Springall said: “It’s a misconception that equity release is aimed solely at the cash-poor or for those looking to plug the gap of their later life share costs. For instance, some consumers may be considering these products for gifting reason.”
She added: “Whilst consumers need to seek advice from an independent financial adviser that specialises in equity release, it can be beneficial to find one who also advises on mortgages, so they can work out the best point of action by going through all the latest options to hit the market – including retirement interest-only mortgages for example.”
