While there has certainly been a degree of negativity and concern in the media around the cost-of-living crisis and rising interest rates, now seems a good time to reflect on the current market and put some context and perspective around what equity release actually looks like in Autumn 2022.
This year’s prediction for equity release lending is that it will surpass the £4.8 billion record set last year and head towards £6 billion, as it continues to become a much more mainstream and acceptable solution for many, and certainly no longer a product of last resort. There is absolutely still a huge demand for these schemes in the Autumn of 2022.
Despite rising interest rates, many clients still have specific needs and objectives to meet and using their property wealth may well be the ideal solution. For those clients without suitable alternatives, a lifetime mortgage- the most popular type of equity release that accounts for over 99% of schemes in the market today, could well be the answer.
For example, many clients may have a mortgage coming to the end of its term - this is often referred to as the “ticking timebomb” or “Mortgage Prisoners”. For this cohort of people, by remortgaging to a lifetime mortgage it could provide them with a cheaper monthly cost. This is because no scheme will actually insist on contractual monthly repayments where the client is at risk of losing their home. But do allow the clients to make voluntary repayments without penalty, a minimum of up to 10% per annum of the amount borrowed and with some plans up to 40% of the amount borrowed. While also providing them with guaranteed security of tenure, that is, the right to remain in the home for the rest of their lives.
Whilst many clients typically choose not to make repayments, for those with sufficient income this is a great way for them to control the long term costs and preserve the equity in their homes. Other popular reasons for releasing equity also include, but are not limited to, home improvements, paying off other debts to free up additional income, helping family members (perhaps to get on the property ladder or as an early inheritance that they can actually witness them enjoy) and family holidays.
While there is no escaping the fact that rates are certainly higher than they have been over the last few years, currently starting at circa 6.5% and reaching as high as just over 9% at the time of writing (11.10.22), for those clients with a definitive need, lifetime mortgages are most certainly an option worth exploring. As the minimum age for a lifetime mortgage is typically 55, the majority of our clients will be aware that shifts in interest rates are cyclical and will remember mortgage rates of over 15% in 1990. Thankfully, we aren’t at that level just yet. Historically, house price inflation over the last 50 years has averaged over 10% per year in the majority of UK regions and in London at a whopping 13.5% per year with the lowest house price inflation being in Northern Ireland, with a jump every year of 5.7% on average. Of course, there are no guarantees that house prices will grow at the same rate over the next 50 years, but these statistics certainly provide some comfort that over the longer-term, clients should hopefully see an increase in the value of their home.
The majority of interest rates on lifetime mortgages are fixed for life. This means clients are protected against any further future rate rises once the rate has been secured on any monies borrowed, but we can still look to remortgage to a lower rate, again fixed for life, in the future as and when rates start to come back down. As responsible advisers we review the plans we arrange regularly.
Here at Viva Retirement Solutions, we will always complete a full and thorough financial review taking into account all your circumstances, complete a full means tested benefit analysis and even tell you if equity release is not the right solution for you. We will look at not only your short term goals, but your long term aspirations too, to make sure that the advice we give, no matter what it may be, is best for you and your family. So why not contact us today, to see how we can help.
You should think carefully before securing other debts against your home