Despite recent turbulence in the UK’s economy, there are still more than 300 equity release plans available across the market. The wide range on offer means your clients can still secure competitive interest rates, high LTVs, as well as a plethora of long-term protections to ensure their plan meets their needs throughout later life.
This short guide illustrates why the product category remains an attractive option for many and provides the information you need to confidently discuss equity release as a suitable financial solution for your clients in today’s economic landscape.
Equity release rates remain competitive vs other forms of borrowing
Currently, the average standard two-year fixed mortgage rate is 6.46%.1 Meanwhile, lenders’ standard variable rates have risen to 6.49%.1 Equity release rates, however, start at 6.38%.
As a result, equity release rates remain in tune with other more conventional forms of borrowing, and well below unsecured alternatives – with the average credit card interest rate reaching 22.2% in September this year.2
High LTVs still available
For clients looking for a large loan amount, there are still significant LTVs available. The highest LTV on the market currently stands at 46.7%.
That means your client could access more than £138,000 from their home’s value, tax-free, based on an average UK house price of £296,000.3
This could be to repay an existing mortgage or debts, gift money to a loved one for a house deposit or boost their later life finances.
Your clients have repayment options to manage the loan size
Your clients may have questions about the impact compound interest will have on their loan. But thanks to the flexibility of a lifetime mortgage, they can choose from three possible repayment options, ensuring their plan works to meet their wants and needs both now and in the future.
Make no monthly repayments to free up more disposable income, with the loan plus compound interest being paid when the plan comes to an end
Make voluntary, ad-hoc repayments, typically between 10–12% each year of the initial loan amount, to help reduce the size of the loan on which interest is charged
Choose an interest-payment lifetime mortgage and make regular full or part payments towards the interest each month to reduce the total amount owed at the end of the loan’s life
By having the choice to make regular, ad-hoc, or no repayments at all, your client can tailor repayments to their individual circumstances and have more control over their financial future.
Your client can still leave a healthy inheritance
If your client is concerned about the potential impact equity release may have on their estate, they can ringfence a portion of their property’s future value to be passed on to their beneficiaries with inheritance protection.
No matter how large the loan becomes over time, the percentage of their property’s value they’ve protected will remain available to be passed on to your client’s estate.
Your client can still move home in the future
If for any reason, your client needs to move to a smaller home in the future, typically, after five years of taking out their lifetime mortgage, they can pay the loan back early without incurring an early repayment charge if their new property doesn’t meet the plan’s criteria.
Your client may be able to remortgage
Although the most common form of equity release is a lifetime mortgage, the plan your client chooses today doesn’t have to be their plan for life.
Typically, after five years, your client may be able to remortgage to a new plan to release further funds, should they need them, as well as add further protections to meet needs which have become a priority since their initial release, or secure a lower interest rate to reduce their total cost of borrowing.
Your client is protected against a potential fall in house prices
Equity release plans that meet the Equity Release Council standards all have a ‘no negative equity guarantee’ which ensures that no matter what happens to house prices, your client can never owe more than their home’s value.
It also guarantees that no equity release debt can be passed on to their children or grandchildren when their plan ends.
Your client doesn’t have to take all the money in one go
Through a drawdown lifetime mortgage, your client can take some of their release now and hold further funds back to access at a later date.
Meaning, if they don’t require the full amount immediately, they can choose to leave a portion untouched – which doesn’t accrue interest.
Therefore, if equity release interest rates were to fall in the future, when your client comes to access those further funds later down the line, they’d be able to release them at the prevailing rate at the time, not today’s.
Getting expert advice
In economic conditions such as these, where factors such as lack of financial resilience may be particularly prevalent, it’s crucial consumers receive specialist equity release advice in order to make an informed decision.
Given the pressure your clients may be feeling in the short-term, it’s important for them to consider if they really need to access the whole release amount now, or if they’d be better off by waiting to see if their circumstances improve.
Also, it’s paramount to explain the impact that making repayments has on reducing the amount owed should they be in a position to service the loan, either regularly or on an ad-hoc basis. This will help ensure your client has a better understand of how to reduce their total cost of borrowing and provide a more personalised customer outcome.
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2 Bank of England
3 UK Average House Price August 2022, ON