Cost of equity release mortgages hits six-year high
The average lifetime mortgage rate has topped 5% for the first time since 2019, said Moneyfacts.
The financial information provider said that equity release mortgage rates have hit their highest point in six years, at 5.63%.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “Retirement plans could be hindered by the rising cost of living and consumers may be considering ways to plug the gap, such as by releasing wealth tied up in their home.
“Interest rate rises were widespread within the lifetime mortgages sector throughout June 2022. Choice of lifetime mortgage options has remained relatively stable since the start of the year, with around 630 deals to choose from today, but the abundance of options on offer far outweighs what was available in 2020.”
Rise in lending
Figures from the Equity Release Council for the first three months of 2022 saw customers unlock £1.53 billion of property wealth in total. This was up 14% from £1.34 billion in the last three months of 2021.
Springall added: “There may be various reasons why consumers decide to use equity in their home to cover costs, such as clearing debts or funding an income shortfall. According to a recent study by LV=, more than one in 10 retirees still had mortgage debt when they retired, and retirees have seen their living costs increase by £163 per month (nearly £2,000 a year). Instead of drawing income from their pension fund to cover unexpected living costs, a lifetime mortgage may be an option, but it is vital consumers seek advice to weigh up all the details before they commit.
“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.”