Equity release average lifetime mortgage rates have hit a six-year high of 5.63%, according to Moneyfacts.
The financial data group says these loans are at their highest rate since August 2016 (when they were 5.76%), and when there were 88 options o the market.
It adds that this is the first time lifetime mortgage rates have topped 5.00% since April 2019, when they hit 5.09% in a market containing 187 options.
In July, average lifetime mortgage rates hit 5.63%, with 631 deals in the market, says Moneyfacts.
The move follows the Bank of England raising interest rates five times in a row since December to combat inflation, which at 9.1% is a 40-year high. Bank base rate is 1.25%.
The latest data from the Equity Release Council says customers unlocked £1.53bn of property wealth in the first three months of this year. This was up 14% from £1.34bn in the final quarter of 2021 – previously the busiest quarter on record – and up 34% year-on-year from the first quarter of last year.
A majority of new customers chose drawdown, 54%, over a lump sum option, according to the Equity Release Council.
Moneyfacts finance expert Rachel Springall says: “Retirement plans could be hindered by the rising cost of living and consumers may be considering ways to plug the gap, such as by releasing the wealth tied up in their home.
“Interest rate rises were widespread within the lifetime mortgages sector throughout June 2022. The average interest rate charged has breached 5.00% and stands at a six-year high.
“Choice of lifetime mortgage options has remained relatively stable since the start of the year, with around 630 deals to choose from today, but the abundance of options on offer far outweighs what was available in 2020.
“There may be various reasons why consumers decide to use equity in their home to cover costs, such as clearing debts or funding an income shortfall. According to a recent study by LV=, more than one in 10 retirees still had mortgage debt when they retired, and retirees have seen their living costs increase by £163 per month (nearly £2,000 a year).
“Instead of drawing income from their pension fund to cover unexpected living costs, a lifetime mortgage may be an option, but it is vital consumers seek advice to weigh up all the details before they commit.
“The cost of living crisis could hinder family members from getting onto the property ladder, and if appropriate, equity release can be a suitable option for consumers looking to pass on earlier inheritance to their children.
“A drawdown option may be enticing for homeowners who only need to release a little bit of wealth as and when they need it in this instance, which will also mitigate incurred interest. According to the Equity Release Council, in the first quarter of 2022, 54% of new customers opted for drawdown lifetime mortgages.
“In the middle of rising interest rates, consumers may feel pressured to take out a lifetime mortgage, but it is imperative they seek independent financial advice to ensure it’s the right choice for both them and their relatives.
“Homeowners may find they can avoid pulling wealth out of their property altogether, but if it is the most appropriate choice then they must be conscious of how equity release works and its resulting impact.”