Average interest rates charged on lifetime mortgages are rising, while headline rates could hit 3.5% by the end of the year, says later life finance expert David Forsdyke.
Average rates on lifetime mortgages rose at the start of 2022 to 4.33% – the highest average rate seen this year, according to Moneyfacts data.
The figure is notably higher than the same period last year when rates stood at a record low of 3.86%.
“Lifetime mortgage rates tend to move in line with the longer-term fixed interest markets, such as the 15-year gilt yield, which have been rising recently as the economy starts to recover from the pandemic,” said Knight Frank Finance, Later Life Finance Associate, David Forsdyke.
“The 15-year gilt yield has risen from below 1% at the end of last year, to around 1.7% in the middle of February and lenders have responded to that by increasing their rates.
“However, the global situation over the last couple of weeks has seen the gilt yield drop back slightly to 1.5%, which means there'll be no further upward pressure on lifetime mortgages. I'm not expecting rates to drop again, but I don't see there being another rise rates anytime soon.”
That said, if there is a continued economic recovery, market leading rates – which at the moment are just below 3% – will rise to around 3.5% by the end of the year, David said.
“For that reason, I’d be encouraging people who are thinking about equity release to act sooner rather than later because if they leave it for another six months, they might find it’s half a percent more expensive.”
The rise follows a boom in activity across the equity release market, with lending reaching a new record high in 2021 to £4.8bn, according to figures from the Equity Release Council.
That was an increase of 24% year-on-year, up from £3.86bn in 2020. The maximum loan-to-value available across the market stands at 51%, compared to 48% a year ago.
“More people are increasingly thinking about equity release for a number of reasons – be it aspirational, lifestyle choices or necessity,” said David.
“It might be they are looking to redistribute their wealth to younger family members, or they might want to use it for inheritance tax (IHT) planning purposes – particularly after we saw a large boom in property values last year, which potentially exposes wealthy homeowners to more wealth tax. Increasingly, it is also being used as a financial planning tool.”
If you are interested in exploring equity release and would like to discuss your options, contact our experts who would be happy to help. We have access to over 200 lenders, and can help find a cost-effective mortgage for you.