But the research company believes it is only a matter of time before it becomes an intgegral part of retirement planning.
Analysis by Defaqto shows that the average fixed rate charged for lifetime mortgages has increased when compared to its nearest analogous product in the residential mortgage market: the long term fixed rate mortgage.
David Black, banking specialist at Defaqto said: "The gap between interest rates charged by lifetime mortgages and long term fixed rate residential mortgages has widened considerably over the last two years. It is worth pointing out however, that the ‘no negative equity guarantee’ is responsible for an additional cost to equity release providers of around 0.7% per annum."
Black added: "A number of providers have exited the market over the past couple of years citing either funding constraints or more profitable opportunities in alternative product areas. Equity release has long been thought of as a sleeping giant but, given the perilous state of many people's pensions, it can only be a matter of time before the two types of equity release schemes - lifetime mortgages and home reversions - become a more integral part of retirement planning."
He concluded: "The equity release business model clearly favours providers who also sell annuities, but the industry in general faces a number of pressing issues if it is to grow.
“These include: funding constraints need to be remedied; competition needs to increase along with the entry of more ‘household name' providers and consumer confidence in the product needs to be reinforced.
“Increased competition should result in a narrowing of the interest rate gap between lifetime mortgages and long term fixed rate residential mortgages."
