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Rates fall on equity release mortgages

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A combination of falling rates and rising property prices is good news for equity release borrowers
Rates fall on equity release mortgages

Lifetime mortgage rates have remained below 6% for the second year in a row, according to Age Partnership.

The average lifetime mortgage rate so far in 2016 was 5.87% down from 6.70% in 2009, a reduction of 83 basis points (bps). Despite a small rise since 2015, this is the second year that the average lifetime mortgage rate has been below 6%, with an average rate of 5.84% last year.

Age Partnership’s data also reveals that lifetime mortgage rates have fallen across all age groups, but have dropped the most for more mature borrowers.

As of April, the average lifetime mortgage rate seen for those between 85 and 89 years old was 5.48%. This is 116 basis points below the level seen in 2009 and is the largest fall seen across all age groups, showing how unlike other traditional mortgages, equity release benefits the mature customer.

Rising property prices

At the same time, over-55 homeowners are benefitting from record high property prices, providing them with increased equity in their home.

Age Partnership’s average customer using equity release this year has on average released £50,626 of equity at an average fixed rate of 5.87% on a property worth £275,920.

This means the average customer only tapped into 18.4% of their housing wealth in 2016, leaving a significant majority of their property wealth for future needs and as part of their inheritance. This proportion is slightly higher than the 16.0% in 2009.

Simon Chalk, equity release at Age Partnership, said: “The average rate for a lifetime mortgage is basically at the lowest it has been, putting homeowners in a great position to take advantage of their housing equity. The market average is below 6% and individual products offer some of the most competitive rates I have ever seen, with some variable rate plans starting from as low as 3% for market leading products.

“We expect this period of attractively low rates to continue for some time yet, especially with the entry of new lenders to the market, including household names like Aviva, Legal and General and even Nationwide saying it plans to offer some form of equity release in future.”

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