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Homeowners with equity release plans should check whether moving to a different deal could save them money over the long term.
Following several reductions in the Bank of England base rate since the summer of 2024, you may find there are savings to be made from switching, depending on your particular deal.
Just as you can remortgage your home if you have a standard mortgage, you may be able to move to another equity release deal to benefit from lower interest charges, alongside potentially more flexible features.
According to the Equity Release Council, which is the trade body for the equity release sector, average rates for a lifetime mortgage, which is the most popular type of equity release scheme, are currently around 7.24%. Whether it’s worth potentially moving onto a lower rate will depend on your particular plan and the rate you are currently paying.
Jim Boyd, CEO of the Equity Release Council, says: “Equity release products are designed and advised on the basis of being long-term commitments, but for some customers, including those with historic plans taken out some years ago, switching may benefit them financially even if there is an early repayment charge involved to exit their original plan.
“It is important to enlist specialist advice to determine the appropriate action for your individual circumstances. There is a wide range of modern equity release products available today, and the most suitable choice for any customer may not necessarily be the one offering 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?
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Are you considering releasing equity from your home? Speaking to an experienced adviser can help you to understand your options.
If you think you’d benefit from expert advice, you can book a free consultation with an adviser at HUB Financial Solutions. A qualified, FCA-regulated equity release adviser you can trust will listen to your needs and talk you through your options. HUB Financial Solutions is rated ‘Excellent’ on Trustpilot.
Please note that equity release will reduce the value of your estate. So if it’s not right for you, the adviser will help you understand some alternatives.
Switching equity release schemes
The number of equity release plans on the market currently stands at around 1,669, according to the Equity Release Council. 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 by choosing the most competitive plan possible.
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.
Check early repayment penalties
Some equity release plans come with eye-watering early repayment charges (ERCs). This can be as much as 25% of the loan’s value, which must be paid if you move to another plan. This could potentially wipe out any financial benefits from moving to a lower rate deal, so it’s crucial you find out exactly how much you’d have to pay to leave your current deal. Learn 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 is 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 increasingly offer flexible features, so there could be other benefits to moving to a different plan, too, alongside a lower interest rate.
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 on to loved ones after you pass away.
Most equity release plans enable you to make partial repayments without facing an early repayment charge, and may also 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.
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Are you considering releasing equity from your home? Speaking to an experienced adviser can help you to understand your options.
If you think you’d benefit from expert advice, you can book a free consultation with an adviser at HUB Financial Solutions. A qualified, FCA-regulated equity release adviser you can trust will listen to your needs and talk you through your options. HUB Financial Solutions is rated ‘Excellent’ on Trustpilot.
Please note that equity release will reduce the value of your estate. So if it’s not right for you, the adviser will help you understand some alternatives.
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