Large fall in equity release borrowers switching deal
The pace at which lifetime mortgage customers are switching lender for a better deal has slowed dramatically, said Responsible Life, falling 34% this year.
The later life mortgage broker said that retirees switched 331 lifetime mortgages to new providers in the first quarter of 2021, compared with 498 in Q1 2020, according to figures obtained from the Financial Conduct Authority (FCA).
The pace of switching fell 28.9% in the 12 months to the end of March 2021, dropping from 1,824 to 1,297.
Why the slowdown?
Responsible Life said that one likely explanation for the slowdown is that many borrowers have already ‘seized the opportunity to switch when rates dropped to between 3% and 4%’.
Despite the recent dip, the pace at which homeowners are rebroking their lifetime mortgages has actually still risen 44% in two years. Currently, around four in every 100 equity release customers are switching each year, out of more than 300,000 outstanding mortgages.
Is it worth switching?
It’s not always clear cut whether it’s worthwhile switching a lifetime mortgage, so it’s important to take advice.
Switching mortgage lender often requires borrowers to pay significant Early Repayment Charges (ERCs). This is especially true in the lifetime mortgage sector, where products are designed to last a lifetime and carry higher ERCs as a result.
But it can still be well worth remortgaging, said Responsible Life.
Switching can be easier the younger you are, because there’s longer left on the new loan to deliver the savings that make switching worthwhile. This is why remortgaging may be advisable for a customer aged 75, but not recommended for another customer aged 85 — even if their product and circumstances are otherwise the same.
If the savings available over the expected life of the mortgage don’t exceed the value of the ERC then switching won’t be recommended by an adviser.
Steve Wilkie, executive chairman of Responsible Life, said: “Lifetime mortgages don’t stop people switching to cheaper rates and it’s not just older borrowers who can benefit.
“Long-time customers may have seen rates fall furthest but younger retirees have the added advantage of a longer remaining mortgage term.
“Persistent misconceptions around the switching of lifetime products could be behind the slowdown in remortgaging that we’ve seen so far this year. The key message for consumers is that larger ERCs aren’t necessarily an obstacle to saving money and the younger you are, the less the interest rate needs to fall for switching to pay dividends.
“Lower rates have, in part, been due to the virtuous circle of greater volumes and increased competition. The popularity of lifetime mortgages has exploded in the last five years and product flexibility has never been greater.”