However, despite interest rates on certain equity release products falling, we should understand that things like interest rates and fees remain just cogs in a much bigger machine. But the equity release machine is getting bigger and slicker by the day.
In the past two months alone, two lenders – More2Life and Legal & General (L&G) to be precise – have launched products with rates historically low rates. The lower rates go, the more attention our market will get, and that’s certainly great for everyone – lenders, advisers and customers alike.
Take an assumed rate at 4%, a customer releasing £70,000 from their home with a lump sum lifetime mortgage will, through the impact of compound interest, owe just over £100,000 – 10 years down the line. However, if the same product had been selected when rates were at 5%, the £100,000 total would have been reached in eight years, and over the whole decade the customer would owe an extra £10,000. So, clearly, falling rates are good for our customers’ equity retention; but in reality many customers are choosing products with higher rates, proving that the importance of interest rates is not all-encompassing – they are simply part of the machine.
Arrangement fees are also part of the machine. Recently, L&G continued its rather bold entry into the market with its announcement last month that they will be scrapping arrangement fees on certain lifetime mortgages. The mainstream denouncement of equity release as, ‘an expensive last resort’, has been going on for years, so getting rid of arrangement fees is another step in the right direction.
This positive move by L&G is one that I hope other lenders follow, as it will make it far harder for the government and the media to dismiss equity release as simply expensive. So with rates falling and fees being scrapped by some lenders, there is a sense of an imminent acceleration in the success of the lifetime mortgage. I can certainly feel it, and I think lenders and customers can too. In the uncertain times we are currently living in, it can be hard, even foolish perhaps, to ever be confident in any sector of the financial markets. We should of course learn from the mistakes of the past, but it seems to me that the wheels are turning in the right direction – and now it’s time to up the ante.
