The average rate paid by lifetime mortgage borrowers has plummeted by 41% or 2.39 percentage points over the past five years, resulting in a saving of £10bn according to analysis by Responsible Life.

Equity release customers paid an average of 3.4% last year, down from 5.79% in 2015, according to the broker.

The calculations are based on data released through a Freedom of Information request submitted to the FCA.

Falling equity release rates mean that even those who only took out their lifetime mortgage fairly recently are being urged to check whether they could save money by remortgaging.

Average rates stood at 4.17% in 2019, which means they are still down by almost a fifth in the year to 2020.

Rock bottom rates and soaring house prices have resulted in a “middle class stampede for lifetime mortgages” according to Responsible Life.

The number sold has risen by 74% in five years, from 23,728 in 2015 to 41,286 in 2020. 

The combination of low rates and high property values mean that many borrowers with lifetime mortgages could save huge sums by switching, even after paying early repayment charges (ERCs). 

ERCs can be particularly high in the equity release sector because products are designed to last a lifetime.

But many can still make significant savings by remortgaging.

Responsible Life highlights the case of one pensioner,  Patrick Buckingham, 82, who switched lender and is now on track to save £16,800 over the next eight years.

If he lives to 95 he stands to save a total of £37,000 as a result of the switch.

Remortgaging can make sense for younger borrowers because they have a longer time ahead of them to claw back savings and offset the cost of the ERC.

On the other hand, older borrowers may have taken out their original loan when rates were much higher, so even though they have less time, the differential in rates can still yield huge savings.

Most lenders’ LTV bands have also improved in recent years, meaning that borrowers can typically take out more now, particularly when you add to this the impact of house price growth. 

Responsible Life executive chairman Steve Wilkie says: “Retirees have been hoovering up improved rates over the past few years as the popularity of lifetime mortgages has exploded. 

“This FCA data confirms that, not only have advertised rates dropped, but the real rates customers have been able to secure have been collapsing too.

“This is hugely important. 

He says that just because advertised rates fall, that does not mean that all borrowers will be able to access those rates as they may find they are excluded by lender’s affordability criteria.

“This proves the equity release market’s progress on rates isn’t just window dressing. 

“Older homeowners have been able to feel the benefit of falling rates in their thousands and are voting with their feet when it comes to financial planning in retirement.”