Analysis by the retirement income specialist has determined the average rate for an equity release lifetime mortgage has fallen to a seven-year low.  As of August, the average equity release lifetime mortgage rate so far in 2015 was 5.82 per cent.

In the same period, average property prices in the UK have reached a record high of £272,000. This means the average housing wealth of home-owning over-55s is likely to have increased significantly.

Average house prices vs. average equity release rates since 2009

Source: ONS house price data

The data also indicates rates have reduced amongst all ages of equity release customers, with mature consumers particularly benefitting.

Age Partnership’s average 65 year old customer currently has a rate of 5.95 per cent, compared to a rate of 5.74 per cent for over-75s. Both age groups have seen a record drop in rates since 2009, when rates were over 6.60 per cent (see graph).

Average rates for 65 year old and 75 year old customers since 2009

Source: Age Partnership data

Rising property prices are helping to balance out the interest paid

House price growth is helping to counteract the interest owed for taking out an equity release plan, meaning equity release customers retain more of the equity in their house for longer.

If house prices were to rise at just 2 per cent per annum (significantly lower than the current growth rate of 5.7 per cent per annum), average property values would have risen to £320,803 by 2027. In the same period, equity owed would have risen to £86,694. However, this would leave total remaining equity of £234,109, up from £208,979 initially, showing the equity owned in the house would not be eroded in monetary terms. This table below illustrates this.

House price growth and the impact of interest

Based on average equity release rate of 5.82 per cent p.a. and house price growth of 2.0 per cent p.a.

Simon Chalk, equity release expert at Age Partnership, said: “Unlike ordinary mortgages, equity release lifetime mortgages offer other benefits which help to take the financial strain off older borrowers too. Firstly, rates are typically fixed for life, meaning borrowers don’t need to worry about how a rise in the Base Rate will affect their mortgage. Secondly and most importantly, plans that meet the standards set out by the Equity Release Council come with a no-negative equity guarantee (NNEG) meaning the amount to repay the equity release plan on death or entry into long term care can never exceed the value of the property itself, eradicating the risk of passing any debt from the plan over to loved ones.

“Borrowers who have been shocked to learn that as they’ve become older, ordinary mortgage lenders simply don’t want to know, are often pleasantly surprised to find the exact opposite is true for equity release; the older you are, the more you can borrow, and as our research clearly shows the rates can be even better value. So anyone put off by higher rates, or not being able to release enough cash a few years ago, might well find now is a perfect time to take advantage of such attractive offers.”

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