Equity Release Rates Drop: A Bright Spot for Homeowners

Equity release rates in the UK have seen a decline this November, mirroring the trend observed in mortgage rates. Equity release, a financial tool used by homeowners over 55, allows them to access the money tied up in their homes. These rates had been on an upward trajectory for the past year, reaching a peak of 8.13% in November 2022. This was the highest rate recorded by Moneyfacts. However, the start of this month has brought a welcome change with the average lifetime mortgage rate falling to 7.13%.

What are Lifetime Mortgages?

Lifetime mortgages form the bulk of equity release plans, the other type being home reversion. They enable homeowners to release funds from their property, which can be pivotal in supporting retirement plans or managing living costs. Unlike standard mortgages, where rates have been consistently rising, the equity release market is now showing signs of more favorable conditions.

The Expanding Market

The beginning of 2023 saw a contraction in the choices available for those looking to take out equity release. Fast forward to now, and the situation has markedly improved. According to Moneyfacts, the number of available deals has almost doubled from 179 in January to 312 currently. Rachel Springall, a finance expert at Moneyfactscompare.co.uk, highlights that while the market has been stable in recent months, the growth in the number of deals since the year’s start is encouraging.

The Preference for Drawdown Mortgages

The Equity Release Council’s report for Q3 2023 (June to September) indicates that this period was the busiest for lending in the year. Interestingly, over half of the new customers opted for drawdown lifetime mortgages. In these arrangements, homeowners can release smaller amounts as needed, which helps in controlling the interest incurred. This choice seems more appealing, especially considering the volatility in interest rates over the past year and the record high rates seen in November 2022.

Seeking Professional Advice

While the current trends in the equity release market are positive, it’s crucial for potential borrowers to seek professional advice before proceeding. The equity release sector offers a variety of options, including products that permit voluntary repayments to reduce borrowing costs or those that allow money to be drawn down instead of receiving it as a lump sum.

Key Takeaways

  • Equity release rates have fallen in November, aligning with the downward trend in mortgage rates.
  • The average lifetime mortgage rate has dropped to 7.13%.
  • The market offers a wider range of products now compared to the beginning of the year.
  • Over half of the new equity release customers in Q3 2023 chose drawdown lifetime mortgages.
  • It’s essential to consult with a financial adviser before opting for equity release.

This downturn in equity release rates could be a boon for homeowners seeking financial flexibility in their later years. As always, understanding the nuances and seeking professional advice is key to making informed decisions.