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Higher cost of equity release as rates rise from record lows

Paloma Kubiak
Written By:
Paloma Kubiak

The majority of later life mortgage providers have adjusted rates resulting in average prices increasing from record lows, analysis revealed.

Every lender except for OneFamily has increased its product rates, according to data site Moneyfacts.

Average rates dropped to a record low of 3.86% in March 2021, but they’ve risen to 4.33% today. Rates have been climbing since the start of the year where they stood at an average 4.10% in January.

However, March’s average rate is not too far off the 4.20% recorded during the same month in 2020. 

As rates fell to lows in 2021, lending in the equity release market reached record levels with a 24% annual increase to £4.8bn. This was up on the total lending figure of £3.86bn in 2020 and the previous record of £3.94bn, seen in 2018. 

The number of products on the market has also risen with 665 available as of this month, up from 661 in January and 492 in March last year. 

The average maximum loan to value (LTV) available to borrowers stands at 51%, compared to 48% last year and 48% in 2020. 

Higher cost of unlocking equity

Rachel Springall, finance expert at Moneyfacts, said: “The equity release market boomed in 2021, during a time of record-low rates in the sector and rising house prices, records show total lending reached a three-year high of £4.8bn. However, interest rates charged on lifetime mortgages are rising this year, and this means unlocking equity out of a home may now be at a higher cost than if someone locked into a deal last year.” 

Springall said growing demand for equity release had encouraged lenders to adapt their ranges to suit varying circumstances.  

She added: “There are currently over 600 different lifetime mortgage options available to consumers, so navigating these could be a difficult process without advice. 

“Seeking advice from an independent broker is not only wise to assess all the options out there, but also to ensure it’s the right choice for both the homeowner and their relatives.”