Remortgaging accounts for almost a fifth of equity release transactions

Key estimates around 19% of all equity released – more than £650 million – in the six months to July was by customers switching to new plans. 3,817 customers remortgaged in the six months taking advantage of lower rates and newer more flexible plans compared with 2,130 in the same period last year – a 79% annual increase.

On average customers chose to remortgage sums of £130,808 from 5% initial rates to 4.2% which could save them up to £16,000 in interest over 10 years. These lower rates will also benefit those customers who are looking to service interest or mitigate roll up by making capital repayments or are looking to take a further advance.

At the end of H1 2022, customers had 676 products to choose from as lenders continue to innovate, and variable and gilt-linked repayment charges now account for just 12% of plans available. With interest rates rising, some historic customers who were previously unable to rebroke due to these ERCs may have more options. Flexible features continue to grow in popularity with downsizing protection available on 70% of products compared to 50% last year.

Inheritance protection is available across 41% of products compared to just 28% last year while all new plans now guarantee customers the right to make ERC-free repayments within lenders’ criteria.

Bank of England base rate rises have pushed up the cost of equity release plans, but the average rate taken out at the end of the first half of this year was 3.65% compared to 4.33% in the first quarter of 2019.

Will Hale, CEO at Key, said: “Remortgaging has also always been a core part of a specialist equity release adviser’s toolkit with advisers continuing to engage with customers throughout the life of their loan as a matter of course. Today’s figures highlight the benefits that customers can see from reviewing their equity release borrowing.

“House price increases have also contributed to the growth in this market with existing customers realising that remortgaging is not only about reducing rates but could also provide the opportunity to raise additional capital which is particularly relevant for some customers as the cost-of-living crisis hits finances.

“While arguably remortgaging may slow down as rates rise, the increasingly flexible nature of equity release products mean that this trend is likely to continue well into the future and become a feature of this market.”