Customers remortgage to benefit from lower rates and more flexible plans
New analysis from equity release adviser Key Later Life Finance has shown that nearly a fifth of property wealth released during the first half of the year came through remortgaging as customers took advantage of increased flexibility and lower rates.
Key estimates that around 19% of all equity released – more than £650 million – in the six months to July was by customers switching to new plans. Data showed that 3,817 customers remortgaged in the first half of the year compared with 2,130 in the same period last year – a 79% year-on-year increase.
Key’s analysis further revealed that, on average, customers chose to remortgage sums of £130,808 from 5% initial rates to 4.2%, which could save them up to £16,000 in interest over 10 years.
“Remortgaging has also always been a core part of a specialist equity release adviser’s toolkit with advisers continuing to engage with customers throughout the life of their loan as a matter of course,” Will Hale, chief executive at Key Later Life Finance, remarked. “Today’s figures highlight the benefits that customers can see from reviewing their equity release borrowing.
“House price increases have also contributed to the growth in this market with existing customers realising that remortgaging is not only about reducing rates but could also provide the opportunity to raise additional capital which is particularly relevant for some customers as the cost-of-living crisis hits finances.”
It was found that by the end of H1 2022, customers had 676 products to choose from. Variable and gilt-linked repayment charges (ERC), which can be an issue for remortgaging, now account for just 12% of plans available. Flexible features continue to grow in popularity with downsizing protection available on 70% of products compared to just 50% last year. Inheritance protection is available across 41% of products compared to just 28% last year, while all new plans now guarantee customers the right to make ERC-free repayments within lenders’ criteria.
Though the Bank of England base rate rises have pushed up the cost of equity release plans, data showed that the average rate taken out at the end of the first half of this year was 3.65% compared to 4.33% in the first quarter of pre-pandemic 2019.
“While arguably remortgaging may slow down as rates rise, the increasingly flexible nature of equity release products mean that this trend is likely to continue well into the future and become a feature of this market,” Hale said.