- Posted on 01 Oct,2018
quity release interest rates have continued to fall for new customers, with competition in the sector credited for forcing existing providers to lower their prices. Tapping into property wealth through equity release has become a more mainstream option, with £3.06bn withdrawn by homeowners in 2017, up from £1.6bn in 2015. However, the high cost is often cited as a major reason for consumers to avoid taking out a plan. Falling rates could tempt even more older homeowners into the market. Figures from the Equity Release Council (ERC), the industry group, said the average rate offered to new customers was 5.22pc in July. This is considerably lower than the 5.96pc average recorded a year prior. Simon Chalk of Later Living Now, an equity release advice firm, credited the recent arrival of firms like Legal & General and OneFamily as having forced existing providers to up their game. “New entrants have come into the market seeking to offer something different,” he said. However, consumers should always consider the overall cost of equity release. Even if rates are initially low, the way interest is charged means the cost can soon mount up. Equity release plans have “rolled up” charges, which means that interest compounds and the overall debt increases quickly. For example, a homeowner releasing £100,000 of equity from their £250,000 property with a typical rate of 5.22pc would face interest charges of about £5,200 in the first year of their plan. By year 15 this would have spiralled to £10,600. If homeowners can afford to wait, they will benefit by deferring the effect of compounding rolled-up interest, but this could be negated should rates in future be much higher. “If someone really needs the money now, then they should do it now. If not, then wait.” However, falling rates will offer little comfort to existing policyholders, who are still paying much higher rates. As Telegraph Money reported earlier this month, those who took out loans before the financial crisis can be paying rates of 7pc or higher, with high exit charges preventing customers from switching to a cheaper deal elsewhere.