Lifeline for older homeowners as loan rates drop below 6pc

Equity release rates have dropped below 6pc for the first time in more than a month as older homeowners cash in on their properties during the cost of living crisis.

Lender More2Life has launched a lifetime mortgage at a rate of 5.94pc – significantly lower than its competitors, whose rates range up to 8.15pc.

Mortgage brokers have called the sub-6pc rate a “turning point” for new equity release borrowers, who have suffered the same interest rate rises as the conventional mortgage market. However, increased competition has driven down rates, experts said.

A lifetime mortgage gives homeowners access to the wealth locked up in the value of their property, while allowing them to remain living there. The loans are repaid when the borrower dies or moves into long-term care.

Stuart Powell, of broker Ocean Mortgages, said: “This is the first time an equity release rate has been below 6pc since the mini-Budget. It will definitely give borrowers a bit more confidence. Hopefully the new normal will be rates between 5pc to 6pc.”

It comes as brokers reported a surge in homeowners turning to equity release. One in five homeowners who took out a loan in the first half of this year did so to cover soaring bills, according to lender Canada Life.

Mr Powell added: “A huge number of over-55s will not have enough money to cover basic bills and the choice between heating or eating will be a reality for many.”

Paul Neal of Missing Element Mortgage Services, another broker, said using equity release to shore up struggling finances had become increasingly common.

Equity release can be a muchneeded lifeline but the controversial loans are not suitable for everyone.

Loans can be costly and borrowers risk losing the entire value of their home to their lender because of the way interest is rolled over and added to the original debt.