Costs are falling, but the future direction of the market hangs on the rate of inflation
We are increasingly seeing the emergence of two distinct camps of Later Life borrowers as the market settles. Each has different needs and challenges, and they are taking different actions as a result.
On the one hand, the Bank of England holding interest rates at 5.25 per cent after a spate of hikes has heralded further reductions in long-term gilt yields. This is good news for Lifetime and Retirement Interest Only (RIO) rates, which are falling to reflect the lower cost of borrowing. Consensus is against the Bank making any further rises this year, but we are keeping a close eye on the costs of goods and services, which remain high and could yet cause the Bank to change tack before Christmas.
However, these falls, which we expect to continue to ease with gilt yields, are having a polarising effect on Later Life borrowers. We are seeing those who have a more needs-based demand for funding going ahead, while borrowers who have less time-specific or urgent needs and can defer their plans are adopting a wait-and-see approach.
One important development which should increase confidence in the sector as a whole is the Financial Conduct Authority (FCA) publishing its H1 complaints data. This showed a 23 per cent decrease in equity release complaints, down to the lowest level since H1 2020.
What does this mean for mortgages?
Lenders are pushing through rate reductions quickly in the hope of increasing the number of loans made in the last quarter and ending the year strongly. We are seeing Lifetime mortgage rates currently from 5.86% MER with RIOs from 6.49% AER fixed for life.
Innovation in the sector, as everywhere, is always welcome and Legal & General has launched a new niche product – a Payment Term Lifetime Mortgage designed for spouses from the age of 50, which allows employed borrowers to lock in fixed-rate payments until retirement or age 75, while securing the maximum loan to value today.
In terms of trends, the majority of enquiries we are receiving are to meet needs-based objectives. Supplementing income is always popular, but we are seeing more requests aimed at funding care at home. On this, it is important to consult social services first, so that an accurate picture of the likely supplemental funding needed can be established.
Looking to the future
Our expectation is for an extended period of static rates, which comes with a continued risk of lower property values, reducing the amount of equity which can be released. That makes expert guidance on the best course of action more critical than ever, especially with regard to understanding what is possible and identifying any alternatives or obstacles to borrowing.
And with families more likely to spend extensive time together in the coming weeks, having this information to hand will allow discussion of potential plans and courses of action with any beneficiaries in a timely fashion.
As always, the Henry Dannell team is here to provide expert advice and guidance which will enable you to make informed decisions. Get in touch with us to find out more about our offering and how we can help you achieve your mortgage goals.
Please note: Later Life product options include Retirement Interest Only and Lifetime mortgages. To understand the features and risks, always obtain a personalised illustration.