Equity Release Market Update
Craig Skelton is joined by Equity Release Specialist, Mark Thompson to discuss what’s happening in the equity release market right now (September 2022).
What effect has the Bank of England base-rate interest rises had on the equity release rates?
In the residential mortgage market, interest rates are on the rise, so products are more expensive than they were a month ago. Mortgage brokers are getting very frustrated by lenders pulling rates at the last minute.
The thing with equity release is, there’s a host of investors and providers funding the products. So, for example, if you make an application with Canada Life, it’s not them that you’re actually borrowing from, it’s the investors’ money behind them. They’re sort of an intermediary. This is why you get so many different products.
Legal and General, for instance, have hundreds of different products because they’ve got hundreds of different investors with different criteria. When it comes to rates, each product has its own. You can have a section of products where the rates are going up, because they have certain providers whose rates are going up, and then a section of products where the rates are going down.
It is very volatile. Generally speaking, the rates have gotten higher, however, and some products are considerably more expensive now than they were a year ago. It can all change tomorrow and we get emails every five minutes telling us that a rate is changing. The important thing is that it depends on how much you’re borrowing. It’s the Loan to Value and your age. The range is probably between 3-7% now, depending on your situation.
Are you finding that clients are applying for equity release for different reasons?
Whatever age you are, generally if you’re a parent, you’re a parent for life. In a lot of cases it’s not necessary, but parents have the issues with the kids that struggle with debt and tuition fees, or to get onto the property ladder. There is a noticeable concern in clients now. I mean, who wouldn’t be concerned about the cost of living and the energy costs?
Drawdown, where people typically take a cash sum but are a bit more focused on the way the cost of living is going, having a drawdown might be something that just to assist me with general living costs and subsistence, might be very much more relevant than it was for some people previously. Nowadays, most of the lenders have merged borrowing so that you’re not penalised for a drawdown. In reality, you can take £50,000 at 3% and have a draw down facility that doesn’t increase that initial 3%.
As with all drawdowns, however, you pay the prevailing rate when you draw them down. So if I’ve got a £50,000 draw down and I take £5000 in a year’s time, it’s whatever the rate is at the time that will apply. Some lenders are even incentivising drawdowns with cheaper rates now.
It’s our job to save as much money for the clients as we can, and even though they’re not having to pay anything back, it is impacting their estate. If they’re taking a mortgage for life, then 0.3-0.5% doesn’t sound like a lot, but it can be a lot of money over a period of 15-20 years.
Has the process for equity release brokers changed due to the volatile market?
What I’ve been able to do for quite a few clients recently is reserve a product. If you apply for a particular provider at a certain rate, even if that rate goes up, they will often give you two or three weeks after you’ve got the illustrations at the original rate, as you’ve already made your intention that you might want that product. You’re not committed to it, but if I have a general discussion with you today, I’ll reserve the most suitable product that I can get you that suits your requirements.
The offer will typically last for a certain number of days. One provider will give you 42 days after you get an offer, but if you don’t complete within that timescale and they’ve had a rate increase, the original rate would no longer be available.
You can extend equity release, that’s quite a complex subject and you’ve got to have the right reason for doing it. Everything is bespoke and tailored to a client and their situation. Which products are right for them depends on a multitude of factors. Ultimately, it’s their choice, what they want to do, but you’re helping them make an informed decision.
It’s my job to make sure that clients don’t overborrow and over commit. As long as they understand what they want it for and why, that provides me with clarity. It’s always about the right time for the client.