Interest rates and equity release

For equity release, interest rates have always been an important part of the industry – sometimes for rather negative reasons. The obvious issue is that the rates on our side of the mortgage arena are higher than those in the traditional mortgage market. We all know the reasons for this, but the usual suspects still like to point it out. However, in recent times lifetime mortgage interest rates have crept lower and lower, making equity release an ever more appealing option for older homeowners.

Comparison site Moneyfacts recently reviewed the entire stable of equity release product, including their associated interest rates, and found that the decrease was significant. In 2016, the average hovered around 5.7%, but by August of this year the average was approaching a flat 5% (5.09% to be exact). This is a sizeable decrease, so it is no surprise that record numbers of customers are now flocking to equity release. Yes, we all know that interest rates are one part of a broader package, but we also know that they remain incredibly important to every customer, regardless of their specific situation. The further rates fall, the more business we complete.

What’s more, interest rate reductions not only tempt more customers to take up equity release, they have a wider impact on the industry as a whole. In essence, interest rate reductions start a snowball effect where more customers arrive, more business is done, and equity release becomes more appealing to new lenders. And to truly take this market to the heights I believe it can reach, attracting new lenders is vital. The current crop of lenders are doing a fantastic job in promoting the lifetime mortgage and delivering great products, but we really do need more heavyweight players. Nationwide brought with them high street credibility, and Legal & General have become market leaders in no time at all, but we need more renowned names entering the fray. By reducing interest rates even further I am certain that more high street heavyweights will throw their hats in the ring.

But the importance of falling interest rates goes further than tempting in new lenders. The more they decrease, the closer they get to the rates offered in the mainstream market, and as a result the more trusted equity release becomes. Time and again equity release products and traditional mortgages are compared like for like, with interest rates always pointed to as a reason why equity release should only ever be considered as a ‘last resort’. So, as rates attached to lifetime mortgages decrease this comparison becomes less and less pertinent. Of course, 5% is still quite a distance from the sub-1% rates you can find in the mainstream mortgage market, but the direction of travel is the key factor. The cheaper equity release becomes the more our customer base will continue to see the lifetime mortgage as a viable option – and hopefully the apples and oranges comparisons will finally end.

Overall, interest rates are just one part of the puzzle. Delivering the best possible product and service for our customers remains essential, but it would be silly to act like they don’t matter. Personally, I can see interest rates continuing to slide and lenders offering even lower rates in 2019. The more our market grows the more competitive it will become, so a 4% average may be on the horizon.

It’s an exciting time to be working in the lifetime mortgage market, and the further our interest rates drop the more difficult the naysayers will find it to disregard us. Keep your eye on equity release in the coming years, as I think it is going to be hard to ignore.