The cost-of-living crisis has added yet another twist to the seemingly endless drama of the past few years.

Whether it’s filling up at the pump or filling up the shopping trolley, everything seems dearer than ever in 2022.

But what about the cost of getting a mortgage? Well, for equity release, interest rates have been hovering around historic lows for some time, but that’s not to say the lifetime mortgage is impervious to the odd rate jump.

It is still ‘cheaper’ to access your equity now than in recent times

According to recent research from Moneyfacts, equity release rates are up on average half a percentage point in 2022. In fact, all equity release lenders — bar one, at the time of writing — have increased their rates since the beginning of the year, and rates for the average lifetime mortgage (4.33% currently) are many times higher than those for a traditional mortgage.

Does this spell disaster for the sector? Far from it. In fact, we all need to look at equity release rates with a new perspective.

It’s true: attention to interest rates will never go away. After all, when you get down to the brass tacks of any financial decision, how much the customer is going to pay will always be a significant factor.

The sector is awash with new policies and options for our customers

But talking about rates within our market is always a little tricky.

Different type of interest

Equity release is one of the only financial products where interest does not have an immediate impact on the customer.

After all, those taking out a lifetime mortgage are not forced to make any monthly repayments and never have been — unlike on a normal mortgage — because the interest rolls up. And, yes, interest is compounded, but there are plenty of customers who do not wish to make monthly payments for various reasons.

The lifetime mortgage will ride out this new cost-of-living crisis and will likely come out the other side stronger than ever

This is not to take away the impact of interest rates; merely to demonstrate this feature as an advantage to a number of borrowers.

Now, you may say that equity release customers can make repayments if they want to. And you would be correct. Thanks to the Equity Release Council’s (ERC) newest official safeguard, all new equity release plans that meet the ERC’s standards will allow for penalty-free partial repayments. But this will always be up to the customer and never forced upon them as with a traditional mortgage.

So, comparing interest rates directly to the mainstream mortgage market always becomes a bit problematic. In truth, the lifetime mortgage is not like any traditional residential mortgage. Rather than siblings, they are more like cousins. The type of cousin you only ever see at Christmas. Distant.

We all need to look at equity release rates with a new perspective

Let’s compare like for like. Regardless of the 0.5% rise in equity release interest rates, the average rate is relatively low — at 4.33%. Compare that to the 6–8% equity release rates that prevailed in 2013/14 and we can see that rates are still lower than they once were.

What’s more, the huge increase in product choice in the modern equity release market will help keep up healthy competition.

The sector is awash with new policies and options for our customers. Just five years ago there were under 100 equity release plans, and now there are more than 6,000. This industry is growing and more new lenders, delivering more new products, will surely have an impact on rates and flexibility.

Unique offering

Ultimately, interest rates will always be important for customers — especially when it feels like literally everything else is rising in price.

But what we need to do is educate everyone about the realities of modern equity release. Explaining to the prospective customer, as well as the wider industry, that the lifetime mortgage is a unique offering that cannot be viewed as the same as, or even compared directly with, the traditional mortgage is the key.

Talking about rates within our market is always a little tricky

Overall, it is still ‘cheaper’ to access your equity now than in recent times.

And, with the new safeguards and protections launched by the ERC, and more products available than ever, the lifetime mortgage will ride out this new cost-of-living crisis and will likely come out the other side stronger than ever.

Andrea Rozario is chief corporate officer at Bower