Equity release or lifetime mortgages are a valuable financial product that enables older borrowers to release funds from their property for a better retirement, to pay off an existing mortgage or to help family members – and many other uses.
Lending in this area hasn’t been as popular in the last few years, mainly due to the increase in interest rates. However, the last report published by the Equity Release Council confirmed lending is on the up.
It stated that the third quarter of 2024 continued the modest growth trend seen in Q2, with both total lending and new plans agreed increasing for a second successive quarter.
This is the first time the equity release market has seen growth for two quarters in a row since summer 2022, before the Autumn ‘mini Budget’ disrupted markets, shook consumer confidence and accelerated the rise of interest rates.
Better product options
We have, though, seen several positive changes in these products over the last few years, especially around early repayment charges. Almost all the equity release products available today have a fixed early repayment charge or the option to choose between a fixed or variable early repayment charge.
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One lender offers no early repayment charges. Also, the option to make partial repayments and/or monthly interest payments is now common.
The launch of the ‘payment term’ lifetime mortgage last year has been a brand-new innovation to the lifetime mortgage market. This product enables the borrower to release funds from their property with set monthly interest payments for an agreed period, to then revert to rolled-up interest later.
As the borrower is committing to pay monthly interest for a set payment term, the lender may be able to lend more than other lifetime mortgage products.
This type of ‘hybrid’ product has never been offered before within the equity release market and shows true innovation.
This product gives the customer the best of both worlds; if they can afford to make the monthly interest payments, they can for an agreed period up to retirement and then the product reverts to rolled-up interest later. This means less interest has been charged over the whole term of the lifetime mortgage with interest payments being made.
These products give customers another option; rather than taking out a standard, perhaps retirement interest-only (RIO) mortgage, and then having to revert to a lifetime mortgage later, when monthly payments can no longer be sustained, these products do both.
They are also available to younger borrowers, the minimum age being from age 50 rather than the usual age of 55.
The interest rates on these types of products can be higher than other lifetime mortgage products and do have specific timescales for when the monthly interest payments must be made.
As a last resort, the home may be repossessed if the monthly interest payments are not made within the agreed payment term period. This is not the case for standard lifetime mortgages as the interest is accrued.
So, these products should be considered carefully with professional financial advice.
