How you could make money from YOUR house – lifetime mortgage explained

Mortgages: Expert advises people to speak to a broker

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Equity release rates have plummeted in the past five years according to new analysis. Falling equity release rates mean even those who only took out their lifetime mortgage fairly recently are being urged to check whether they could save money by remortgaging. The combination of low rates and high property values means borrowers with lifetime mortgages can save huge sums by switching – but how does this work?

The average UK house price is now £235,000 after a buoyant summer for the market a new report shows.

The latest House Price Index published by property website Zoopla found the housing market is continuing to grow.

However, many property experts believe a slowdown is imminent once the stamp duty ends at the conclusion of September.

The average house price in the UK rose by 1.2 percent in the three months to the end of August according to the report.

This means annual price growth was put at 6.1 percent, up from 2.8 percent in August 2020.

Older homeowners have profited from the property boom according to mortgage broker Responsible Life.

The report revealed falling interest rates for equity release mortgages, coupled with rising house prices, have made it much more cost-effective for older people to release funds from their properties.

Equity release has become much more popular with those aged 55 and over in recent years.

This property move helps people unlock wealth accrued in their homes.

A lifetime mortgage, the most common form of equity release, is when you borrow money secured against your home, provided it is your main residence while retaining ownership.

Sometimes people are able to ring-fence some of the value of their property as an inheritance for their families.

Some providers may also offer larger sums if they have certain medical conditions or lifestyle factors such as a smoking habit.

The low cost of a lifetime mortgage has made switching existing loans more attractive.

Borrowers paid an average interest rate of 3.4 percent last year, down from 5.79 percent in 2015, according to figures obtained under the Freedom of Information act by mortgage broker Responsible Life.

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In total, more than 214,000 lifetime mortgages were purchased between 2015 and the end of 2020 according to the Financial Conduct Authority (FCA).

Steve Wilkie, of Responsible Life, said: “It is hugely important that not only have advertised rates dropped, but the real rates customers have been able to secure have been falling too.

“Just because advertised rates fall, these rates are not available to all borrowers because of affordability criteria.

“It proves progress in the equity release market isn’t just window dressing.”

The number of lifetime mortgages sold has increased by 74 percent over the past five years.

Equity release plans are intended to exist until a homeowner dies or enters long-term care.

These initiatives effectively lower interest rates which often tempt borrowers to remortgage, even if they must pay huge exit fees on the original loan.

The number of lifetime mortgages available have doubled in the last two years, according to the Equity Release Council trade body, rising to a record high of 668 in July 2021.

Is a lifetime mortgage right for you?

Lifetime mortgages are potentially right for you depending on your age and personal circumstances.

You must consider the following before taking out a lifetime mortgage:

They reduce the amount you leave as an inheritance.

With an interest roll-up mortgage, the total amount you owe can grows quickly.

This means you might owe more than the value of your home unless your mortgage has a no-negative-equity guarantee (Equity Release Council standard).

A mortgage with variable interest rates might not be suitable because the interest rate might rise significantly, but this is capped for mortgages meeting the Equity Release Council standards.

In addition, anyone entitled to means-tested benefits may see these impacted.

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