Equity Release: a letter to the editor

David Forsdyke, our Later Life Finance specialist, shares his recent letter to the editor of The Times

I read with dismay the story of an Equity Release borrower in last week’s Sunday Times.

The borrower, 65, took a £197,950 loan in 2016, only to discover that the interest rate of 6.44% would cause her debt to compound to £989,467.82 by 2042, when she would be 87. The early redemption charge is £49,786.

The Equity Release market has moved on a great deal in the past three years. For those on deals agreed between three and fifteen years ago, there are significant savings if they are able to remortgage.

In fact, with a reasonable set of assumptions, we’ve calculated the lady in question could save between £300,000 and £500,000 by 2042. This is because she may qualify for much cheaper rates as low as 2.57%. Rates are typically fixed for life, which is 15 years or more for the average Equity Release customer, and hopefully much longer for this lady.

Anybody with a lifetime mortgage paying above 5% should now consider switching, because even with a large early redemption charge, the long term saving could be significant. Our Later Life Finance team can quickly assess whether such a saving is possible.

With the Equity Release Council’s new standards framework in force since January, the Equity Release market is safer today than ever before. All providers have signed up to the Council’s product standards. The FCA’s regulations make sure advisers are qualified to give advice, and they must inform borrowers of the pros and cons.

We reached out to the Sunday Times journalist over twitter, to see if we can help the lady in question.

If you would like to know more about Equity Release or our Later Life Finance service, please visit the Borrowing Into Retirement section of our website, or call us.