Equity release is continuing to improve in popularity, with an increasing quantity of deals allowing borrowers to opt for a once a month income rather than a cash lump sum.
A range of innovations, along with lower interest rates, resulted in a 29% increase in the total amount borrowed by homeowners in 2022, based on data in the Equity Release Council.
Here, we explain the important thing changes happening within the equity release market and take a look at current rates on lifetime mortgages.
Equity release: the basics
Equity release products allow homeowners to unlock a few of the money in their home while continuing to live in it. For some, equity release represents an alternative to downsizing, while for others it can fund a shortfall in a pension pot or help pay for care in later life.
Lifetime mortgages are the most widely used form of equity release. These schemes involve going for a loan out in your yard, which is then repaid when you sell the house or die.
Some borrowers choose to unlock a lump sum payment through equity release while others have a ‘drawdown’ policy, which supplies a smaller summarize front using the option of drawing further loans at a later date.
Innovations in equity release
While equity release has numerous critics (more on the downsides later), the most recent report from the Equity Release Council shows a substantial development in popularity and also the quantity of products open to borrowers.
In 2022, the amount of deals meeting the council’s equity release criteria increased dramatically, from 86 to 221.
| Date | Number of products |
| January 2022 | 86 |
| August 2022 | 139 |
| January 2022 | 221 |
This increase is in part right down to lenders becoming more innovative in their offerings.
One of the biggest changes continues to be the introduction of regular income deals within the second half of 2022. These items provide borrowers with monthly obligations instead of lump sums.
One of the most well-known deals in this space comes from Saga, which launched its ‘Regular Drawdown Lifetime Mortgage’ last October, allowing homeowners to create how much they would like to receive every month, having a minimum payment of lb200.
Three key innovations
Equity release product features
| Feature | Number of deals offering this | Percentage of deals |
| Voluntary repayments with no early repayment charge | 127 | 57% |
| Downsizing repayment options | 114 | 52% |
| Fixed early repayment charges | 89 | 40% |
| Inheritance guarantee* | 83 | 38% |
| Available on sheltered/age-restricted accommodation | 77 | 35% |
| Drawdown facilities | 61 | 28% |
| Allows regular interest payments | 45 | 20% |
| Offers regular income payments | 32 | 14% |
While the above mentioned table shows the amount of deals offering key features, it doesn’t necessarily reflect how popular each feature is with homeowners.
Indeed, while only 57% of equity release mortgages allow voluntary payments with no early repayment charges, 87% of the loans taken out in the second half of 2022 offered this selection.
Best rates on lifetime mortgages
If you’re thinking of taking out a lifetime mortgage, the good news is that rates are getting lower.
In the last month, Legal & General has cut its rates by as much as 0.32%, resulting in a market-leading rate of 3.4%.
The rate you’ll pay depends upon two key things: the amount you have to borrow (the best rates may require you to definitely borrow a minimum of lb100,000), and also the loan-to-value (LTV) you’re borrowing at.
Below, you'll find the lowest rates at four different LTV levels.
| Max LTV | Lender | Monthly rate | AER | Min/max borrowing |
| 38% | Legal & General | 3.4% | 3.45% | lb100,000/lb2m |
| 42% | Legal & General | 3.49% | 3.55% | lb10,000/lb750,000 |
| 45% | LV | 3.52% | 3.58% | lb10,000+ |
| 50% | LV | 3.61% | 3.67% | lb10,000+ |
Where are people taking out equity release products?
Data in the Equity Release Council implies that around one out of 32 mortgages is really a lifetime mortgage, even though this might be set to improve.
The report shows double-digit growth in every region from the UK in 2022, with the Midlands seeing some of the biggest increases in uptake.
| Region | Year-on-year growth | Five-year growth |
| East Midlands | 26% | 100% |
| Northern Ireland | 21% | 112% |
| West Midlands | 20% | 80% |
| Yorkshire and also the Humber | 18% | 66% |
| Wales | 17% | 64% |
| North East | 16% | 67% |
| East of England | 15% | 158% |
| South East | 14% | 143% |
| South West | 14% | 99% |
| London | 12% | 138% |
| Scotland | 12% | 62% |
Why are homeowners getting equity release products?
Looking while dining above, you may be wondering why there’s been such an increase in equity release products and uptake over the last few years.
Largely, this really is down to the culmination of years of rising property prices, that have meant many older people have a lot of wealth tangled up in their homes.
And with people living more than before, this has led progressively more people to turn to their properties for retirement income.
The drawbacks of equity release
Equity release schemes might be getting more popular, but they’re not the right choice for everybody.
One of the biggest difficulties with equity release is the fact that interest compounds quickly and can drain away any inheritance you’re likely to leave. For example, an eternity mortgage over 20 years will finish up costing you more than 3 times the number you initially borrowed.
And while some lenders are innovating, some products still come with high early repayment charges, and therefore switching to some cheaper deal can be quite costly.
Alternatives to equity release
Of course, equity release isn’t your main option.
For some borrowers, remortgaging may be possible, and people who aren’t seeking to release a significant sum could consider a personal loan.
There’s also the chance of downsizing, although moving to some smaller home can be quite expensive in the current market.
That’s due to two issues. To begin with, there’s a lack of quality smaller homes for older people to maneuver to. This is particularly the situation with bungalows, which may be few in number. This scarcity results in higher prices.
Then, there’s the various costs of moving home, including the need to pay stamp duty.
Retirement interest-only (RIO) mortgages
Right now, the market for so-called RIO mortgages is growing, by having an increasing number of lenders offering deals.
RIO mortgages are a type of mixture of interest-only mortgages and equity release. Many of them involve paying interest on a monthly basis to have an indefinite term, using the mortgage being repaid whenever you die or use to care.
One of the stumbling blocks of these products is that you’ll need to pass affordability checks to prove you are able to satisfy the repayments.
