The Achilles’ heel of the equity release industry has always been the issue of perceived cost. Despite our consistent success and growth over the last few years, the entire market is still regularly written off as an “expensive last resort”. Unfortunately, when it comes down to it – regardless of the safeguards, special features and new products launched in recent times – things like interest rates remain the bottom line for many of our customers, and equity release is always going to have higher rates than the normal mortgage market. And herein lies the problem: lifetime mortgages and normal mortgages are different.
If we are ever going to reach the mainstream, our focus must be to make lifetime mortgages more respected in isolation. The reality is that our products are very different to those offered in the traditional mortgage market, so obviously things like interest rates will differ. However, we are still struggling to show that direct comparison between the interest rates on equity release products and normal mortgages are mostly unhelpful.
What’s more, after a solid period of lifetime mortgage rates sliding downwards, many lenders are now increasing their rates, so comparisons become even more damaging. According to research from Moneyfacts, six of 11 equity release lenders have upped their rates in the last quarter, and although interest rates are still relatively low (a record-setting low average of 5.03% was reached in July this year), the average has crept back up to 5.1%.
So, with interest rates climbing, we must try and stop people comparing mortgages and lifetime mortgages like-for-like. To do this we need to make people look at equity release through a new lens. A lens where people look beyond the bottom line of interest rates and view equity release as a stand-alone option with numerous safeguards. This will take time and teamwork, of course, but once we get across the right message, we will take our industry into a whole new level of success.
Ultimately, when lifetime mortgages demand no immediate repayment, and normal mortgages do, fair cost comparison is extremely difficult. Of course, over the years customers will build up more interest to eventually repay, but it is frustrating that the way our customers repay is consistently ignored and often misunderstood. Once we stop ignoring this fact and more people understand that comparing the cost of equity release and normal mortgages directly is not that simple, we will be moving in the right direction.
Overall, equity release interest rates will never be on a level with traditional mortgages – but that’s not the point. 5% versus 1% is a large gap, and I feel people will continue to point to this as the main reason why lifetime mortgages are expensive, but the truth is that equity release is a unique retirement finance option, with an equally unique repayment structure.
All in all, it is very difficult to compare equity release to anything else on the market. There are no options that can deliver the same as the lifetime mortgage, and direct comparison tends to muddy the water rather than bringing any real clarity. And clarity is what customers need, as retirement finance is a confusing enough place already.
Hopefully, as equity release continues to grow and improve, we will reach a more nuanced environment where the lifetime mortgage can be viewed as an individual choice that can help thousands of older homeowners. I know this may be some way off, as we are still just a small niche in the broader mortgage market, but let’s punch above our weight. Equity release today is completely unrecognisable from the industry of the 1980’s and 90’s, so who’s to say that in the future that we can’t cast off the shackles of the “expensive last resort”. It may be a while yet, but I for one am confident that equity release is here to stay and the landscape will change once again.
Andrea Rozario is chief corporate officer at Bower Retirement