Older homeowners withdrew record £3bn equity in 2017 - but those in the south pay higher rates

Gerrards Cross in Buckinghamshire; the south east accounted for almost a third of equity release lending last year
Gerrards Cross, Buckinghamshire. The south east accounted for almost a third of equity release lending last year Credit: Paul Grover

Home owners aged 55 or over withdrew an estimated £3bn equity from their properties in 2017, the largest annual borrowing ever recorded.

The figures, from specialist financial planners Key Retirement, show borrowing by this group jumped 40pc on the previous year - driven mainly by older homeowners wanting to clear other debts or spend on refurbishments.

Anyone over the age of 55 can use a “lifetime mortgage”, also known as equity release, to draw on the value of their homes. The majority of homeowners used at least some of the money raised to fund home improvements, according to Key Retirement.

The loans require no monthly repayments, with the interest instead rolling up until the loan is repaid, usually on the borrower’s death. Most lenders guarantee that the total amount of debt will never exceed the value of the borrower’s home - and the majority of rates are fixed for life.

A new trend sees lenders charge higher rates in certain regions

While equity release business has boomed, some of the biggest lenders have introduced a new policy of charging higher fixed rates to borrowers in certain regions, namely  London and the south east, where property prices are higher and thus deemed more at risk of a correction.

On its “Flexible Max Plus” plan, major equity release lender Legal & General charges customers in London and the south east a rate of 5.72pc, while borrowers elsewhere pay just 5.66pc.

Over the course of a 20-year loan of £71,500, this means the London borrower would pay an additional £2,584 in interest payments, according to research by Laterliving Now!, an adviser.

Adrian Anderson, of Anderson Harris, a mortgage broker, said: “Some companies may feel that London or the south east is quite overheated and there’s more potential for value in other areas of the country. This is all about lenders managing their risk, and this is just one factor they will use to set pricing.

“But it’s frustrating for consumers and I think some will see it as unfair. Lenders have got to be careful the difference doesn’t become too large.”

A spokesman for Legal & General Home Finance said the company’s new strategy is aimed at boosting equity release outside London and the south east, which traditionally make up the bulk of the market.

“As part of this commitment, we are piloting slightly lower prices to customers in the rest of the UK, which also reflects the property risk of lending in these regions,” he said. “We hope this will raise customer awareness  in other parts of the country to consider the role a lifetime mortgage can play in their retirement plans and realise the benefits of accessing property wealth in later life.”


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Insurance company Aviva, another major player, said that while postcode has a minimal impact on its interest rates, it would be more significant in terms of the amount you can borrow, or the “loan-to-value”. Borrowers in areas deemed to be more high-risk in terms of value may find their borrowing capped.

Simon Chalk, of Laterliving Now!, said he understood why lenders may do this. “Lenders will usually determine their lending based on the property value and the age of the youngest borrower,” he said.

“What we are looking at here is Aviva being the first to offer this postcode pricing model. That leads to a lottery from street A to street B.”

He said some equity release providers simply don’t lend to people in some areas, so Aviva could argue it is at least making an offer to everyone, but added: “If you’re living in one street and your mate round the corner has a better deal because he is outside Surrey and you’re in it, is that fair?”

A spokesman for Aviva said: “We do take postcodes into consideration in our ER pricing, as they are one of the indicators of potential housing market movement in any given area.

“This could have an impact on our pricing because we offer a no negative equity guarantee on all our products which is an important customer benefit.

“If one postcode area has a more volatile housing market than another then this could potentially present a greater risk to resale value, which of course increases the risk we carry. Our rates would therefore differ between these two areas because of the increased risk.”

She added that the issue of limiting the loan-to-value was rarely a problem as most customers do not draw on the maximum amount available to them.

Reader Service: Interested in mortgages for the over-60s? Check if you are eligible for a lifetime mortgage with a free equity release calculator

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