Data from Moneyfacts.co.uk revealed, since the start of 2022, all lenders in this space but one had hiked their rates. It means the typical interest rate on a lifetime mortgage is currently 4.33% compared to the record low of 3.86% in March last year.
It comes after equity release lending hit a new record in 2021, with figures from the Equity Release Council showing it had climbed 24% year-on-year to £4.8 billion.
Lifetime mortgages are the most popular type of equity release plan and work by allowing homeowners to release money tied up in their home.
They are available to over-55s and are often used to make home improvements, provide an income in retirement or to support family members.
Recent data from Canada Life showed a rise in the number of people last year who were releasing equity to clear mortgage debt.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “The equity release market boomed in 2021, during a time of record-low rates in the sector and rising house prices, records show total lending reached a three-year high of £4.8 billion.
“However, interest rates charged on lifetime mortgages are rising this year, and this means unlocking equity out of a home may now be at a higher cost than if someone locked into a deal last year.”
Growing options
Rachel explained how the growing demand for equity release had encouraged lenders to adapt their range to suit an array of different circumstances.
“There are currently over 600 different lifetime mortgage options available to consumers, so navigating these could be a difficult process without advice,” she explained.
“Consumers may be unsure whether to take a lump sum or drawdown, however, the latter may prove popular for those only looking to release wealth as and when they need it most to mitigate incurred interest.”
According to the Equity Release Council, during Q4 2021, 61% of new customers opted for drawdown lifetime mortgages, the highest percentage of the year and up from 59% in Q4 2020.
Rachel added: “Seeking advice from an independent broker is not only wise to assess all the options out there, but also to ensure it’s the right choice for both the homeowner and their relatives.
“Taking a lifetime mortgage will impact inheritance and while some homeowners may feel pressured to make a decision amid rising interest rates and living costs, careful thought and planning is a must before they make any arrangement.”
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What Mortgage has teamed up with Equity Release Supermarket to answer your questions on Equity Release.
To read this month’s Q&A or to submit your own query, click here.
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