Equity Release cases halve as interest rates increase

In 2022, equity release loans in UK totalled around £6 billion. In 2023, due to higher rates of interest, this is likely to fall to around £2.5 - £3 billion of loans being taken up.  The managing partner of Martin Tolhurst, Richard Carter, commented:

“Homeowners now have to accept that we live in a higher interest rate environment than we have had for the last few years and this includes equity release.  It is essential that someone considering equity release should look at all of the options available to them and take specialist advice from a financial adviser, lender and solicitor before embarking on an equity release loan.  Other options such as downsizing may be preferable but for many people equity release can be a favoured option".

Increasing interest rates have recently hit the equity release market with many commentators online indicating that debt on equity release mortgages could double within a decade, given recent higher rates.  In October 2021, equity release mortgages were available from around 2.9% fixed for the whole of the mortgage with leading providers.  However, in autumn 2022, interest rates leapt to over 8% before falling back.  However, a number of leading providers now have equity release interest rates below 6% despite recent rises in the Bank of England base rate.

So, what does it mean for people considering equity release?  It certainly means that in the event that borrowers do not make any monthly payments or part payments to their lender, and roll up the debt during the term of the loan (monthly payments get added to the capital that is owed) then the debts will increase more quickly than if you are taking out a loan in 2021.  But equity release is still an option for many people over 55 who have equity within their property and no other means of raising capital.  Equity release for many is a last option but for others it may be the only option where they have bills to pay (for example, home projects, capital purchases such as a car or moving to more suitable accommodation). 

Martin Tolhurst Solicitors are solicitors who are members of the Equity Release Council, which represents the equity release sector and exists to promote high standards of conduct and practice in the provision of an advice on equity release. The Equity Release Council members have consumer safeguards at the heart of their advice. 

Whilst many borrowers choose to “rollup” interest payments into the capital, and do not pay a monthly amount many others choose to make monthly repayments to cover the interest or part of the interest and thus the debt does not increase.  Some borrowers seek to borrow money on equity release schemes gradually rather than in one lump sum.  This means they can get a variety of interest rates, depending on the time that they take out any further advances.  There is no sign that interest rates are likely to fall dramatically in the next year or two, so this could be an option.

Martin Tolhurst have a policy of seeing their clients for an hour-long meeting to discuss equity release, once the clients have their equity release mortgage offer and have already received full-fledged advice from their specialist financial adviser.  Martin Tolhurst do not offer financial advice and suggest to clients considering equity release that they see a specialist equity release financial adviser who is a member of the Equity Release Council before proceeding. During our hour-long meeting with clients discussing their equity release mortgage, we take them through other options, what the mortgage offer means, and likely capital repayment depending on whether monthly payments are made or not.