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The i Paper: Is equity release still a good idea with higher rates?

Journalist: Sarah Davidson, Freelance

ended 31. January 2023

Understand that equity release providers have seen a significant fall in funding availability following the market crash after the mini budget. And obviously rates have risen significantly in line with BBR. 

  1. Has there been a drop in demand for lifetime mortgages?
  2. How much are higher rates responsible? 
  3. Is there a scarcity of funding and is that affecting rates? Ie, lenders are pricing to be uncompetitive?
  4. Should people still be looking at taking lifetime mortgages given the expense now?
  5. What are the circumstances when it is still appropriate?
  6. Are you seeing clients deciding not to go ahead having previously considered it? If you have, please could you ask them if they'd be prepared to be a case study for me?
  7. Should borrowers be looking for any criteria in particular to give them the best deal? 
  8. What are the alternatives?

8 responses from the Newspage community

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Editor
Samuel Mather-HolgateVerified
Independent Financial Adviser at Mather and Murray Financial
As the economy weakens and the cost of living crisis bites, the demand for equity release continues to rise, despite higher interest rates. Most people who look to take out equity release understand this is a lifetime product and are not too concerned about whether there is any equity left in their property when they die or need care. Thanks to the Equity Release Council, you cannot owe more than the value of your home so legacies can still be left to loved ones outside of bricks and mortar.

By enabling borrowers to pay off interest-only mortgages, raise capital to help children and grandchildren or just indulge themselves, equity release can be a great product.
We have had customers who have reconsidered because of rates, but they typically wanted to leave equity to their children or consider paying off the loan in the future.
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Justin MoyVerified
Managing Director at EHF Mortgages
The demand for lifetime mortgages has tailed off given the sharp increase in rates, but with the improvements seen in 2023, we expect to see a pick-up soon. With many Lifetime Mortgages taken to help younger family members with deposit money, as the residential mortgage market improves so will the lifetime mortgage market. However, as always there will be many older clients looking at their options to repay their traditional mortgages as the overall term is due to expire this year, and there are some great options to consider. Popular options include the ability to service the interest each month, just like an interest-only mortgage, which stops the loan increasing and compund interest.
Lifetime Mortgage Rates are not a million miles away from normal residential deals, so its definately worth looking at as a viable option.

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Gareth DaviesVerified
Director at South Coast Mortgage Services
We've seen a steady increase in the demand for equity release despite rate increases in Q4 of 2022. We have noticed a trend and a change to the enquiries though, and it seems to me that a 'need' to access capital is becoming more prevalent than just a 'desire'. With the cost of living increasing, the disposable income for people on pensions only is being squeezed dramatically. We recently had a client that had no hot water or heating due to a broken boiler in the middle of a cold snap, and she didn't qualify for any government help. Thanks to equity release we were able to fund the repair for her, along with ensuring she has sufficient funds to have in the bank to cover various other needs. With flexible repayment options, she has the flexibility to pay nothing at all towards the debt, or she could service the interest if preferred.
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David RobinsonVerified
Co-Founder at Wildcat Law
Equity Release, whilst much maligned by some, is a simple solution to a growing problem. The main complaints tend to arise from future beneficiaries when they discover their inheritance has been significantly eroded by compounded debt on the property.
There are alternatives to equity release, but they tend to be more complex and carry different risks. One option is to sell the property to family and then pay them rent. This can be used as part of IHT planning but there are numerous pitfalls, not least the risk of losing the roof over your head or the transaction being deemed a gift with reservation if done incorrectly. The people buying should also be aware of personal taxation issues to them. This may also open up subsequent challenges from potential beneficiaries if they are not aware of what has taken place.

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Paul NealVerified
Mortgages & Equity Release Advisor at First Choice Financial Services
There has been a drop in Later Life Lending enquirys at the moment, but it is still a great product if its suits, many people at the moment are taking it as more of a necessity with Interest Only mortgages coming to an end or shortfalls in retirement income being the main factors.
There are very few lenders below 6% currently but as funders grow in confidence we are hoping to see more follow suit.
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Mark Stallard0
Director and Advisor at House and Holiday Home Mortgages
Interestingly, we've seen no drop in demand for later-life lending. However, we do expect loan sizes to fall. People are rightly being much more careful with their spending in the current climate.

Because of this, I'd expect products that allow clients to make monthly payments to rise in popularity.

Good advice is crucial to ensure that it is the right route to go down. With products that support home improvements, family support, downsizing and much more, this is an area of lending we expect to continue to grow.
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David Conway0
Director at Clayhall Financial Services Ltd
Equity release is a fantastic model for the exact market its designed for. This older generation have substantial wealth - money in the bank (except its bricks and mortar) and if they want access to it, ER gives it without the hoops and barriers with high street banks. Often this money is for the next generation to get on the housing ladder, paying for improvements, buying a car, or paying for children's education. All they are doing is getting their inheritance early. Since this generation (who benefit) have an increasing income over their working life, and equity release is a fixed rate of interest, the children will find it increasingly easy therefore to repay if they were to take on the payments.... not to mention the IHT benefits. These are considerations on top of just the cost of borrowing.
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Natalie Hines0
Founder at Premier One Mortgages
I had a case this week where the client had been looking for equity release presuming this was his only option, he had already been quoted by several advisers. My advice in his situation was to not look at equity release but a retirement interest only mortgage as the cost savings were huge for him. Every client situation is unique but if a client is receiving pension income or still working into retirement there are other options out there which are preferable.