How you could save more than £50,000 by switching your equity release plan

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OLDER homeowners could save thousands of pounds by checking if they could switch to a better equity release deal.

A growing number of people are using this plan to free up the cash they own in their home.

Equity release is available to those aged 55 or over, and lets you access cash you hold through the value of your property.

It’s like a mortgage because it’s a loan secured against your home. But the key difference is you won’t have to make monthly repayments.

Instead the interest on the loan is rolled up, and paid off either when you move into care or when you die.

Borrowers can take out as little as £10,000, but depending on how much your home is worth and the plan you choose, you could get considerably more – as much as 58% of the value of your property.

The money is tax-free too, so you don’t have to worry about a bill from HMRC.

As house prices rise and people live longer in retirement, equity release is getting more popular.

According to the Equity Release Council, more than 23,000 homeowners took out an equity release plan in the first three months of the year.

You might also be able to find a more flexible plan that better suits your needs.

Here’s what you need to know.

Like standard mortgages, you can switch your equity release loan to a better deal.

Age Partnership, the UK’s largest equity release broker, said homeowners who switched last year saved an average of £51,211 each over the life of their loan.

To be able to switch, you’ll need to have had your existing plan for at least 12 months.

It’s worth asking a broker for a review to see if you’re eligible – they’re often free, and could deliver bumper savings.

That’s all the more important as millions of households grapple with a cost of living crisis and struggle to cope with soaring bills.

Retirees in particular may find their pension income is not going as far as it used to.

What you need to know about switching your equity release plan

Interest rates are rising, and that could mean homeowners should consider acting soon to lock in the best deals.

Andrew Morris, senior equity release adviser at Age Partnership, said: “Anyone who is thinking about switching their old plan should act now and have their free review to get ahead of the rise in rates.”

In 2016, the average interest rate on equity release plans was 6.15%.

Today they are much lower at 4.33%

But as the Bank of England has been hiking interest rates, mortgage rates are set to increase too.

Morris said: “Equity release plans are also much more flexible than they were in years gone by, so the added benefit for anyone thinking about switching is that they have much more control over the loan than they once will have done.”

Flexible equity release options

As well as cheaper deals, equity release borrowers have far more options than they used to.

According to Moneyfacts, there are 665 different these plans now available, compared to just 66 in 2016.

Plans that meet the standards set by trade body the Equity Release Council now have to allow voluntary repayments, which can help to stop your debt from growing further.

Some deals also now let borrowers withdraw their money in chunks, rather than taking the full amount at once.

That can save you money as you only pay interest on the cash you have accessed.

And you can now have the option of moving home and taking the loan with you, depending on terms and conditions set by the lender.

Is switching equity release plans right for everyone?

Whether or not switching your plan is right for you will depend on your circumstances.

But it could be worth keeping an eye on the market in case better deals are launched.

Age Partnership said one of the reasons that people often aren’t able to change their plan is that the loan-to-value (LTV) ratio is too high.

If these are high, it could outweigh any benefits of switching, especially if you’ve not had the loan for long.

Speaking to an expert can help. A specialist equity release adviser can check the costs of your current plan and compare it to new rates to see if it is worth switching.

How to switch your equity release plan?

Brokers such as Age Partnership offer free reviews to help you work out if changing plans is an option.

When choosing an adviser to help, make sure they can recommend plans from a range of lenders (some may be tied to just one company).

This will ensure you are recommended the best plan for your individual needs. 

They will check things such as whether you qualify for the latest plan developments, the amount you owe on your equity release plan including any interest that has accrued, and any early repayment charges (ERC)/ exit fees on the original loan.

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