Equity release is regarded as a viable option by an increasing amount of borrowers, with a marked increased in the amount of products available to homeowners.
As a result, providers have been able to drop rates in an effort to gain a competitive edge.
“It is remarkable that rates on lifetime mortgages are now typically lower than those for most residential mortgages," said Nigel Hare-Scott, managing director of Home & Capital Advisers.
"This is all the more surprising given that products in our sector are typically fixed for life, which can potentially extend for up to 40 years – SHIP requires that providers make lifetime mortgages available at fixed or capped rates.”
He pointed out that firms appeared to be 'leapfrogging' each other to cut rates, especially as other mortgage businesses lost their shine. However this meant that advisers were at risk of recommending a product only for it to then be beaten by another provider before the paperwork had even been completed.
Currently, the most competitive lifetime mortgages currently cost around 5.9 per cent (APR 6.2 per cent) fixed for life (including a no negative equity guarantee). This compares with 7 per cent or more APR for the typical fixed rate homebuyer loan (taking account of the arrangement fees and reversionary rate).
However around four years ago lifetime mortgages were well above 8 per cent, indicative of the changing opinion towards the products, especially since regulation.
Benefits such as early leaving guarantees and extra payments, as well as cash lump sum options, have also piqued consumer interest.
Hare-Scott continued: “The watchword in equity release is flexibility. Each customer has a different lifestyle and different financial needs, which keeps providers on their toes.
“An equity release plan is a means of enhancing your lifestyle, not a strait jacket. Some lifetime mortgages can be redeemed easily and at minimal cost – in fact the term ‘lifetime mortgage’ is a bit of a misnomer since they can be very flexible and don’t need to last a lifetime.”
