Homeowners with equity release plans are being urged to check whether moving to a different deal could save them money over the long term, with interest rates currently close to all-time  lows.

Just as you are able to remortgage your home in the traditional mortgage market, you can switch to another equity release provider’s deal to benefit from lower interest charges, alongside potentially more flexible features.

According to financial website Moneyfacts.co.uk, average rates for a lifetime mortgage, which is the most popular type of equity release scheme, are currently around 4.17%, compared to average rates of more than 5% five years ago. There are several plans with rates below 4% available, and some of the best deals currently stand at about 2.8%. However, with growing speculation that interest rates could rise sooner rather than later, the most competitive deals might not be around for long.

Jim Boyd, CEO of the Equity Release Council, says: “Today’s low interest rates and varied product range provide more options for existing customers seeking to switch to another plan. Specialist advice can identify whether existing customers can ‘rebroke’ their plan and if they can benefit from doing so. It is important to weigh up a range of factors as part of this decision, as the most suitable option might not necessarily have the lowest rate.”

If you’re a homeowner aged 55 or older, you can use equity release to access money tied up in your property, without having to sell it. The loan is eventually repaid when the property is sold, you pass away, or go into care. However, this type of scheme won’t be right for everyone, as it will affect the amount of inheritance you’re able to leave and may affect your entitlement to means-tested benefits. Find out more about some of the pros and cons in our guide Equity release – what is it and how does it work?

Switching equity release schemes

The number of equity release plans on the market has reached a record high at around 700, according to Moneyfacts, or more than double the number two years ago. Like any other financial product, it pays to shop around, as you may be able to save thousands of pounds in interest over the life of the equity release plan.

Equity release mortgages can run over many decades, as they only have to be repaid when you die or move into long-term care, so your overall debt can dramatically increase in size. This makes it really important to ensure you have a product offering a competitive interest rate. Find out more about how much you might have to pay for equity release in our article Costs of equity release. Our Lifetime Mortgage Calculator can help give you a sense of how much a lifetime mortgage might cost over 10, 20 or even 30 years.

Rachel Springall from financial website Moneyfacts.co.uk says: “Homeowners who took out an equity release plan five years ago will find that rates have fallen significantly during that time. These homeowners may want to consider switching onto a new plan as it could result in lowering the cost of their equity release. However, they will need to consider any additional charges or fees they may incur switching plans.”

However, fewer people are choosing to move to a different plan to benefit from lower repayments. The number of people switching deals to benefit from a lower interest rate fell by more than a third in the first three months of 2021, compared to the same period the year before, according to equity release broker Responsible Life. It says that about 500 people moved deals between January and March 2020, falling to 331 this year, possibly due to a lack of awareness that they are able to switch

Check early repayment penalties

Some equity release plans come with eye-watering early repayment charges (ERCs) which can be as much as 25% of the loan’s value which must be paid if you move to another plan. Find out more about some of the charges you could face in our article Equity release – what are the risks?

Typically, ERCs are a fixed percentage of the initial loan over a set period of time, and decrease on a sliding scale. For example, according to the Equity Release Council, ERCs may typically start at about 10-15%, ending after a specific period when the loan can be repaid without penalty. Other products may come with variable ERCs, however, where the amount owed can be up to 25% of the original loan and based on factors such as gilt-pricing. Aviva, for example, is known for applying this method to calculate its ERCs, which are on the higher end of the scale.

The ERC should be explained to you when you take out your plan, but the size of the charge may still come as a shock if you want to move to a different product with a lower rate. Before moving deals, check how much you may have to pay, if anything, and if there are any exemptions when an ERC isn’t payable. For example, some equity release products enable you to repay the debt early without being hit by an ERC if, for example, one partner in a couple passes away, or you are downsizing.

However, even if your product does have an ERC,  it may still save you a substantial sum over the life of the loan to pay this penalty and switch to a more competitive deal. A professional adviser can help you decide whether switching is still right for you.

What other product features might you want?

Equity release plans are increasingly offering flexible features, so there could be other benefits to moving to a different plan, too, alongside a lower interest rate.

Springall says: “The equity release market has remained resilient during 2021 and, in fact, business is booming and is expected to grow in the years to come. The boom in product choice can provide a deal more tailored to someone’s circumstances, and lenders have shown their commitment to adapt their ranges.”

For example, features may include the ability to repay some of the money borrowed, without penalty, or to ring-fence some of the value of your home so that this is available to pass onto loved ones after you pass away.

Around three-fifths of equity release plans enable you to make partial repayments without facing an early repayment charge, according to the Equity Release Council. Around one in four plans offer an inheritance guarantee, while half come with downsizing protection, meaning that the loan could be repaid without charge if you sell and move to a smaller property in the future.

Seeking professional advice

Before moving to a new provider, make sure it’s a member of the Equity Release Council, which is the trade body for the equity release sector. Products provided by its members must, for example, provide you with the right to remain in your property for life or until you need to move into long-term care. They also offer a ‘no negative equity guarantee’, so that you can never owe more than the value of your property even if property prices fall.

You can find an equity release adviser via the Equity Release Council website here.

If you’re looking for somewhere to start, Key group is one of the more established providers who offer advice on equity release. It is a member of the Equity Release Council and has an excellent customer service rating on Trustpilot. If you are interested in a free, no obligation conversation with one of Key’s equity release specialists, you can call 0800 188 4813 or request a callback.

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