The Premium Flexible lifetime mortgage will be available at a minimum loan value of £200,000.

Legal & General said the product’s low interest rate will allow customers to make substantial savings compared to using other products on the market.

Borrowers owning a £5m property and releasing £1m worth of equity through Premium Flexible would save close to £8,000 in interest in the first year of debt compared to if they used L&G’s Flexible Lifetime Mortgage. Savings would rise to over £70,000 over a 15-year period, according to the lender’s calculations.

The lifetime mortgage comes with an arrangement fee of £4,999 and offers 1% cashback.

Game changer

The Premium Flexible Lifetime Mortgage is the first equity release product offering an interest rate below 5% which could be a “game-changer” for the sector, according to Nigel Waterson, chairman of the Equity Release Council.

Dean Mirfin, director at Key Retirement, said he believed the product would appeal to customers who are interested in equity release but have not been attracted enough by existing interest rates.

He said this type of rate will only be available for lower loan amounts if there is a major shift in pricing as smaller advances will not create the right type of margin for the lender.

“I think an increase in competition and potential new funders being attracted to the market are the sort of activities that will drive rates down. Still, there is a definitive cost of borrowing that the providers have to cover before they can pass on any further savings onto customers.”

Useful in the care market 

Simon Chalk, technical manager of equity release at Age Partnership, said he believes that the product could have a place in the care market as it allows customers to draw a tax-free lump sum which could be paid directly to care providers.

This could prove particularly useful as the average care home costs over £29,500 per year, according to the Partnership Care Index.

He said that the arrangement fee could be disproportionately high if taking out the lowest loan amount of £200,000, but that it would offer ‘very good value’ at the £1.5m to £2m end of the spectrum.