More than half of lenders offering equity release deals through lifetime mortgages have increased rates, which makes it more expensive for homeowners attempting to unlock cash.
The average rate on the lifetime mortgage is now 5.10%, up from a record low of 5.03% in July captured, according to financial data analysts Moneyfacts.
A lifetime mortgage enables you to borrow upon your home’s value – and the interest rates are often added to your debt, meaning you've got no repayments.
But with rates of interest increasing, equity release can be a less attractive option for homeowners trying to release cash. We take a look at what’s happening to lifetime home loan rates and also the options to consider.
How have lifetime equity release rates changed?
Six out of eleven lenders have upped their rates in the last quarter, based on Moneyfacts, and some did so more than once.
The average lifetime mortgage recorded its lowest ever rate of 5.03% captured in July, but it now stands at 5.10%.
This upward trend is pronounced when looking at the average rate for lifetime mortgages, ranging up to 50% loan-to-value. Typically, rates have risen from 4.67% to 4.83% in the last quarter.
Moneyfacts suggest lenders are now beginning to incorporate the bottom rate rise from 0.5% to 0.75% in August captured.
|Average lifetime equity release rate (based on rate not APR, fixed and variable)
|Number of deals (fixed and variable)
Despite the increases, average lifetime home loan rates continue to be relatively cheap in contrast to five years ago, once the rate was 6.11% and there are much more lifetime mortgage products available to select from.
What is equity release?
Equity release products allow you to unlock some of the cash in your home while enabling you to keep residing in it.
This could be an option to downsizing and may allow you to fund a pension shortfall in order to help pay for later life care.
There are two main kinds of schemes: home reversion and lifetime mortgages.
A lifetime mortgage is easily the most common method. It enables you to borrow a proportion of the home's value. The eye charged on this loan is rolled away along with that which you borrow, meaning nothing has to be paid back until you die or sell your house. But keep in mind that your debt will grow over time, which could significantly erode the amount of equity you possess.
If you want more flexibility, a drawdown lifetime mortgage enables you to have a smaller lump sum payment upfront and also have the choice drawing funds if or when you really need them.
With home reversion schemes, you sell a share of your property to a firm at below market value. You're able to live in your home, but once you die or get into care, the firm will claim its share when your home sells as repayment.
Is equity release best for you?
Equity release keeps growing ever more popular. The latest figures from the Equity Release Council reveal that homeowners unlocked a record-breaking lb1.02bn from their properties previously 3 months. This is up 25% between your third quarter of 2022 and also the same period in 2022.
However, while equity release is booming, it isn't suitable for everyone. An eternity mortgage, for example, may cost a lot more than 3 times what you initially borrowed over 20 years. This means that whenever you die or get into care, there will be significantly less equity left for your children to inherit.
Before releasing cash from your home using equity release, it's important to think about the benefits and drawbacks, and just how the different products work.
Alternatives to equity release
If you're keen to unlock a few of the value of your house, equity release isn't your main option.
You could get an unsecured personal bank loan, downsize to some smaller home or release some cash by remortgaging.
There's also a growing range of retirement interest-only (RIO) mortgages. This can be a product which is really a cross between an interest-only mortgage and equity release. It allows you to definitely pay monthly interest for an indefinite term and also the mortgage is repaid whenever you die and have to go into care.
However, to make use of this method you'll need to make sure you possess a reliable income to pay for the repayments.