Interest rates for equity release products drop to record lows as uncertainty continues over the Coronavirus economic impact.
The average cost of equity release fixed rates falls to a record low of 4.48% in January according to Equity Release Council data as the number of products exceeds 300 from lenders.
With the spread of Coronavirus (Covid-19) the best fixed rates based on the lowest provider loan to values have reduced further to 2.79% in April 2020 slightly more than the average 2.52% for residential 10-year fixed rate mortgages.
These lower rates allow homeowners to release cash from your home using a lifetime mortgage and use this for any reason such as new bi-folding doors or pay university fees for grandchildren.
Releasing equity now much cheaper
Over the past four years the cost of releasing equity has reduced considerably from an average of 6.25% in January 2016 to 4.48% today.
There were only 7% of products with rates less than 4% in January 2019 increasing to 42% just a year later and by releasing smaller amounts from your home there are rates below 3% which is cost effective if you were planning on buying a dream home in retirement.
The following table from the Equity Release Council shows different borrowing product rates for loans and mortgages for 2019 and 2020.
| Product rates | 2019 | 2020 |
|---|---|---|
| Personal loans | 7.98% | 7.93% |
| Equity release | 5.21% | 4.48% |
| 5 year fixed 95% LTV | 3.64% | 3.32% |
| 10 year fixed 75% LTV | 2.66% | 2.52% |
| Credit cards | 18.67% | 20.77% |
| Overdrafts | 19.70% | 21.24% |
Borrowing using a personal loan costs 7.93% per year and credit cards or overdrafts exceed 20% per year making equity release a useful way to consolidate expensive debt.
Equity release also compares well to a residential 5-year fixed rate 95% loan to value (LTV) for a first time buyer costing 3.32% or home mover mortgage costing 2.52% with 10 year fixed 75% LTV.
It is possible foe a remortgage buyer to replace an existing equity release plan if you have a high interest rate of over 6% or more and switch to a lower 3% rate. For an initial loan of £65,000 this could save you £29,000 in the next ten years.
In 2019 nearly £4 billion was released from property wealth of which £1.8 billion was in the second half of the year and 63% of new customers used drawdown taking a smaller lump sum cash upfront.
Strong demand to access cash
People in retirement are accessing increasing amounts of cash with savings withdrawals from flexible pensions reaching record levels of £2.75 billion in quarter two of 2019.
Find out the amount of cash you can access from your house, payoff an existing mortgage and the best providers at this link:
Equity release calculator with charts, figures and instant results for your home.
This was followed in quarter three and four with an increase in withdrawals from property showing that in retirement there is a growing need for retirees to access multiple sources of cash.
Demand for equity release has been strong although the number of agreed and completed lifetime mortgages in 2019 is down by 3% compared to the previous year.
This remains better than other types of mortgages with the number of mortgages completed for first time buyers, remortgage buyers and home movers lower by 5-7% over the year.
In contrast the numbers of buy-to-let investor purchases and remortgaging landlords has increased year-on-year.
Equity release is the fastest growing sector rising 21% over two years and 98% over four years albeit from a low base and only represents 3% of the total number of new mortgages in the UK.
What are your next steps?
Talk to our London City Mortgage advisers if you are an older homeowner releasing equity from your property, we can recommend the lifetime mortgage accessing wealth to consolidate debt, home and garden improvements.
Find out about planning your future using equity release such as to downsize your home and repay an existing mortgage at this link:
Free equity release quote to downsize your home and release cash.
As mortgage brokers we can provide advice if you are moving home, want to remortgage your existing home to a new cost effective mortgage deal or are a buy-to-let investor looking to release cash.
