Simon Chalk, technical manager – equity release – at retirement specialist Age Partnership, expects rates in the sector to continue to fall as money markets make life financially easier for those looking to release cash from their property.
Chalk, who joined the firm back in February, told Mortgage Introducer: “The cost of funding continues falling and competition amongst lenders is hot right now.
“It really wouldn’t surprise me if rates became available sub-5% by Christmas. I believe it won’t be too long before you see a lender really grabbing the headlines with a 4.99% rate in the equity release sector.”
Age Partnership, the second biggest intermediary in the sector, already has plans to launch its own lender by the end of the year, following in the footsteps of Key Retirement Solutions – the UK’s biggest equity release intermediary – which initally launched lender More 2 Life in early 2008.
Pre credit crunch there were some 21 lenders operating in the equity release market. Today there are just nine.
And with so few lenders in the market any new addition would be a welcome boon to a market estimated to be worth just under £1bn.
Chalk added: “Equity release loans are often criticised by the tabloids as being expensive but with current rates from 5.39%, fixed for an indeterminable time and now with interest-payment options, you have to say that we have soundly answered the critics.”
Key figures in the equity release industry would not rule out a drop in rates but said they would be surprised to see it happen.
Dean Mirfin, group director at Key Retirement Solutions, said: “I think we need to see some real house price movement before this is to happen.
“Part of the cost of providing lifetime mortgages comes from the inclusion of the no negative equity guarantee and this has to be factored into the cost of borrowing.
“As such it is quite challenging to get the rates below 5% but there is the potential to do it. However it would not be a wholesale change for the market.”
Steve Lowe, group external affairs & customer insight director at Just Retirement, said: “I’d be very surprised to see such a reduction in rates. It just doesn’t fit in with our model or future planning.
“At present market rates are flat and looking forward I can only see them remaining at the same level or possibly rising.”
When asked his opinion on Age Partnerships entrance into the market Lowe added: “I’d welcome Age Partnership joining the market and we would like to see other big names join them.
“Any increase in competition is good for the customer and good for the intermediary.
“We look forward to welcoming Age Partnership to the market when they launch.”