Home equity release: what the experts say
Market weathervanes, blessed release and ERCsome charges
Market weathervanes
Reading the runes of UK monetary policy is notoriously difficult, said Stefan Wagstyl in the Financial Times. But there’s “a clear sense” that the era of ultra-low interest rates is on the way out. Even though the top mortgage offers of high-street lenders like Halifax, Nationwide and Santander “have barely risen since the summer” (all are offering five-year, fixed-rate loans at 0.99% for up to 60% of the property value), it can’t last much longer.
Indeed, lenders have already raised rates on equity release mortgages, “which are something of a market weathervane as they often involve very long-term loans”. The lowest rates on these products have jumped from 2.4% a few weeks ago to 2.8%. “There’s no need to panic” – rates were much higher pre-Covid, at 3.5% or more. But it may pay to start thinking about a new deal.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Blessed release?
Over the past decade, equity release products, which allow the over-55s “to tap into the value of their home”, have boomed, said George Nixon in The Times. There are currently 812 loans available, with an average rate of 4.17%. “Most homeowners choose a lifetime mortgage, either taking one large lump sum or releasing money in stages.” The interest is typically added to the debt and repaid when the borrower dies or the house is sold. These schemes can vastly improve people’s quality of life. The catch is that higher rates “make a huge difference” to the amount eventually repaid. A £200,000 loan at 6.82% (the going rate in 2011) would nearly double to £394,802 after ten years – leaving many heirs with a nasty surprise.
ERCsome charges
Unlike “normal mortgages”, there’s “no fixed-rate period that expires” in home-release schemes. But you can still shop around for a better deal. The big caveat is “steep early repayment charges” (ERCs). It’s crucial to “run a calculation to establish how long it will take to reach break-even point”, says financial adviser Abigail Banks of Private Office. “Sometimes the difference in rates does not outweigh the charges.” Borrowers are required under FCA rules to take financial advice before taking out an equity release loan. It’s a good idea to have “a frank conversation” with the family too.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
Supreme Court to resolve Louisiana gerrymander
Speed Read The court will hear a case challenging the second majority-Black district in the state
By Rafi Schwartz, The Week US Published
-
Boeing machinists approve contract, end strike
Speed Read The company's largest union approved the new contract offer, ending a seven-week strike
By Peter Weber, The Week US Published
-
America might be in a second Gilded Age
In the Spotlight The first Gilded Age was marked by rising inequality and a push for social change
By Justin Klawans, The Week US Published
-
The World Bank and the IMF: still fit for purpose?
In the Spotlight Washington meeting has renewed focus on whether 80-year-old Bretton Woods 'twin' institutions are able to tackle the challenges of the future
By The Week UK Published
-
Post Office: still-troubled horizons
Talking Point Sub-postmasters continue to report issues with Horizon IT system behind 'one of the worst miscarriages of justice in British legal history'
By The Week UK Published
-
The UK's national debt: a terrifying warning
Talking Points OBR's 'grim' report on Britain's fiscal outlook warns of skyrocketing spending, but 'projection' is not a 'forecast'
By The Week Published
-
Copper coins: are they doomed?
Talking Point Treasury says no new 1ps and 2ps needed due to declining use – but would we really miss them?
By The Week UK Published
-
Will the housing slump ever end?
Today's Big Question Probably not until mortgage rates come down
By Joel Mathis, The Week US Published
-
Shein: could the year’s mega-IPO fall apart at the seams?
Talking Point Latest hitch is a pre-float 'security review' that could deter potential investors
By The Week UK Published
-
Labor market strong as inflation sinks
Feature And more of the week's best financial insight
By The Week US Published
-
Midair blowout: another black mark for Boeing
Feature This isn't the first production issue Boeing has encountered
By The Week US Published