- The number of borrowers who changed deals fell by a third this year
- Brokers say many mortgage holders don’t realize it’s possible to do so.
- Patrick Buckingham, 82, stands to save £16,800 over eight years
- Customers may be vulnerable to punitive early repayment penalties
After a dramatic drop in the number of people switching providers for a lower rate over the past year, those with equity release mortgages are being urged to examine whether switching deals can save them money.
According to equity release mortgage broker Responsible Life, the number of retirees switching deals fell by more than a third in the first three months of 2021 compared to the same period a year ago.
While around 500 people changed their deals between January and March 2020, it fell to 331 this year.
Borrowers with equity releases or ‘lifetime’ mortgages can save thousands of pounds when they switch to a better interest rate – as did 82-year-old Patrick Buckingham
Also known as a lifetime mortgage, equity release loans are a way for older homeowners to access the money tied up in their property, and then pay them back through the sale of that property when they pass away or care. go in.
The homeowner must be 55 or older, and can typically borrow up to 50 percent of the value of his home. However, compound interest payments mean that the loan can grow in size rapidly.
Rates on equity release mortgages have been declining for a few years now. The lowest interest rates on offer are now around 2.5 per cent, down from a high of over 6 per cent when the equity release market was in its infancy.
Responsible Life said the decrease in switching this year was partly due to the fact that some homeowners didn’t know they could make the switch.
Steve Wilkie, executive chairman of later life mortgage broker Responsible Life, said: ‘Persistent misconceptions about switching to lifetime products may be behind the slowdown in remortgaging seen so far this year.’
While many equity release products come with a penal early repayment fee of up to 25 percent of the value of the loan for those who switch, doing so can save them thousands if the interest savings over the life of the plan exceed the lump sum. The penalty is paid.
“The important message to consumers is that large ERCs aren’t necessary to save money and the smaller you are, the lower interest rate is needed to pay dividends,” Wilkie said.
Rates on equity release products have come down, so it may be worthwhile to compare deals.
Rates are lower now than they used to be, so for those who haven’t already switched, doing so could save them thousands – as our case study below shows.
According to financial data provider Moneyfacts, the number of equity release options is at a record high with 698 plans in the market – more than double the amount available just two years ago.
Other brokers in the equity release market agree that many borrowers are still not aware that they are able to transfer the plans.
Matt Sterland, Executive Director of Equity Release Switching at Edge Partnership said; ‘The option to review your equity release loan every 12 months is a service we have provided to our existing clients for many years.
“Earlier this year we opened the service to everyone who has an equity release loan, whether arranged by Edge Partnership or not, and the response has been phenomenal.
‘It is clear that most people with existing equity release plans were not aware that they had the option of transferring the plans, potentially gaining a lower rate, and saving thousands of pounds by doing so.’
‘We would encourage anyone who has had their plan for more than 12 months, to take advantage of a free plan review, ideally from a whole market broker who has access to all 698 plans available across the full range of lenders. have access to.’
If they switch, the borrower will need to use part of their new loan to repay the old lender.
The pace at which homeowners are renegotiating their lifetime mortgages has still increased 44 percent in two years, up from 230 in the first three months of 2019.
Currently, about four out of every 100 equity release clients are switching each year out of more than 300,000 outstanding mortgages.
‘Switching saved me £140 per month’
Patrick Buckingham could potentially save thousands of pounds after moving to a new equity release scheme
82-year-old Patrick Buckingham, a savvy lifetime mortgage client, changed his plan and stood to save £16,800 by the time he reached 90.
He initially released £100,000 from his five-bedroom home near Warwick in 2017. To fund his retirement and help his two grandchildren climb the wealth ladder.
Patrick’s wife, Ausma, tragically passed away in 2018 at the age of 78. He recalled that one of the conditions of his lifetime mortgage was that, if he or his wife died within the first three years, the mortgage could be paid off early without penalty. .
Patrick had seen declining interest rates on lifetime mortgages, so went back to his advisor at retirement mortgage broker Responsible Life to find out if he could switch to another lender and save money.
He confirmed that his original loan with More2Life at 3.90 per cent could be swapped for a cheaper loan with the credit attributable at 2.27 per cent – saving Patrick £16,800 over eight years, and £37,000 by the time he reaches the age of 95 .
Patrick, who worked for the Land Rover Group for 45 years, said:
‘I always read the financial pages of the newspapers every day and it is fair to say that I am always someone who wants financial value.
“I managed to reduce my rate from 3.90 per cent to 2.27 per cent and I am happy.
‘The new rate is saving me about £140 a month. In 25 or 30 years, that’s a significant amount.
‘Most people are…