Equity release rates top 5% as lifetime mortgage options widen

The cost of releasing equity has hit a six-year high with interest rates on lifetime mortgage products exceeding 5%, new data has revealed.

Equity release allows older homeowners to take some of the money invested in their home to use for another purpose, such as home renovations, holidays, to help family members or to top up their pension, amongst other reasons.

More recently evidence has suggested many over-55s were releasing equity from their property to pay for the rising cost of living.

For those considering taking out a lifetime mortgage, or other type of equity release plan, the average rate according to Moneyfacts.co.uk is currently 5.63%.

This compares to April 2019 when there were 187 products on the market, and August 2016 when there were only 88 options from which to choose.

Today, customers have a much wider choice of equity release options – in fact, said Moneyfacts, there were 631 deals available with many different types of options to suit different needs and circumstances.

Indeed, figures from the Equity Release Council, which regulates the industry, said the majority of new customers (54%) have chosen drawdown – where money is released in stages, as opposed to a lump sum.

Rachel Springall, finance expert at Moneyfacts.co.uk, said: “A drawdown option may be enticing for homeowners who only need to release a little bit of wealth as and when they need it in this instance, which will also mitigate incurred interest.

She added: “In the midst of rising interest rates, consumers may feel pressured to take out a lifetime mortgage, but it is imperative they seek independent financial advice to ensure it’s the right choice for both them and their relatives.

“Homeowners may find they can avoid pulling wealth out of their property altogether, but if it is the most appropriate choice then they must be conscious of how equity release works and its resulting impact.”