Equity release rates drop – is it worth unlocking cash from your home?

Lifetime mortgage rates are falling from their record highs - is equity release worth another look?

woman signing contract
(Image credit: Getty Images)

Equity release rates are starting to drop from their record highs, giving older homeowners more options if they are looking to release cash locked up in their property.

The appeal of equity release has dampened in recent months as rates rise and house prices fall.

But data from the Equity Release Council shows the third quarter was the busiest period of the year so far for lending, with homeowners unlocking £716m of property wealth, up 8% annually.

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This has been boosted by falling lifetime mortgage rates.

Moneyfacts data shows the average rate on a lifetime mortgage has fallen from 7.33% at the start of November to 7.18%.That compares with a record high of 8.13% last year.

Borrowers are also benefiting from more choice, with the number of deals at 312 compared with 179 in January.

Most borrowers are choosing drawdown over a lump sum withdrawal, according to the ERC.

This provides more flexibility as you only take the money you need and reduce the amount of interest that is rolled up.

Is equity release worth it?

Equity release has always been more expensive than a standard mortgage but many older homeowners may not have had a choice if they wanted to access cash to boost their retirement and didn’t meet a bank’s affordability or maximum lending criteria.

The differences in rates became more stark over the past year as mainstream mortgages rose above 6% on average but equity release rates rose above 8%, deterring many.

A calmer market and slowing inflation has seen the equity release market benefit from a drop in rates.

David Burrowes, chair of the ERC, says the market is recovering from high interest rates but suggests “pent-up demand” is likely to emerge as the interest rate cycle begins to turn.

Several lenders have cut rates since the start of November which is helping bring pricing down, Moneyfacts said.

But there are risks to consider such as high fees and the impact it may have on any inheritance you want to leave behind.

“A lifetime mortgage could be an option for borrowers to use some wealth from their home to support their retirement plans or help towards the cost of living,” says Rachel Springall, finance expert at Moneyfactscompare.co.uk. 

“Borrowers who are considering an equity release plan would be wise to seek independent financial advice to navigate the abundance of deals and choose the right one that suits their circumstances. Lifetime mortgages have several important factors to consider, such as associated fees, drawdown and, of course, the impact on passing inheritance to family members. 

“Hopefully, we will see continued resilience in the market and more rate cuts as the year-end approaches for those looking to take out a lifetime mortgage.”

Marc Shoffman
Contributing editor

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.