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Legal and General to offer 4.99% lifetime mortgage

  • 15/02/2016
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Legal and General to offer 4.99% lifetime mortgage
Legal and General has released a drawdown lifetime mortgage at 4.99% , available to borrowers with homes worth more than £533,000 at a minimum loan amount of £200,000.

The lender said the low interest rate of the Premium Flexible lifetime mortgage will provide customers with substantial savings compared to other products on the market.

By using the product, borrowers owning a £5m property and releasing £1m worth of equity would save close to £8,000 in interest in the first year of debt compared to if they used L&G’s Flexible Lifetime Mortgage. Savings would rise to over £70,000 over a 15-year period, according to its calculations.

L&G claims the Premium Flexible is the first equity release product offering an interest rate below 5%. It comes with an arrangement fee of £4,999 and offers a 1% cashback.

Nigel Waterson, chairman of the Equity Release Council, said this could be ‘a genuine game-changer for our sector’.

“Product innovation of this sort together with the industry standards will further mainstream equity release in 55 plus financial planning,” he added.

Dean Mirfin, director at Key Retirement, said the product will offer the best rate as the market sits today, and he believed it will feature considerably among customers looking at single advance, high loan values.

He said its wider impact on the market depends on the amount of lending that it will attract, but that it takes an important step in offering an interest rate below the ‘magical’ 5%.

“I think there are a lot of customers out there who would potentially be attracted to that sort of pricing. The question is whether or not it flushes out customers who have looked at the interest rates available and not been attracted enough. It puts equity release in the spotlight for that type of loan size,” he said.

Simon Chalk, technical manager of equity release at Age Partnership, said he believes the product will have a place in the care market, as it will allow older borrowers to draw a tax-free lump sum which can be paid directly into the care home of their choice.

While he said the product has an arrangement fee that could be disproportionately high if taking out the minimum loan value of £200,000, he said it offered ‘very good value’ at the £1.5 to £2m end of the spectrum.

Mirfin said he believed this type of rate would only be available for lower loan amounts if there was a major shift in pricing.

“The challenge is trying to get rates as low as possible but still create the right type of margin for the lender, and with smaller advances you don’t have that. It’s no different to any other type of mortgage lending.

“I think an increase in competition and potential new funders being attracted to the market are the sort of activities that will drive rates down. Still, there is a definitive cost of borrowing that these providers have got to cover before they can pass on any further saving onto customers,” he said.

Mirfin added that one of the challenges with equity release was the rate itself was only one of the criteria. Though the Premium Flexible is competitively priced, it may not offer the right features customers want such as being able to make monthly payments or the structure of the early repayment charges.

In early February, L&G announced it hit its yearly lifetime mortgage target of £200m for 2015.

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