Individuals aged over 55 seeking to take out a mortgage or remortgage their home have access to a new lifetime mortgage fixed interest rate of 2.82% annual percentage rate (APR) from Lifetime mortgages provider Responsible Lending. Its previous market lowest rate was 3.02 APR in August.
Responsible Lending highlight that lifetime mortgage interest rates have been falling throughout the industry, sparked by record sales in the bulk annuity sector. This has mean, it says, that with gilt rates falling, those managing investments on behalf of annuity providers have been searching for stable, low-risk investments and lifetime mortgages can meet that need.
As a consequence this increased demand for investment opportunities in lifetime mortgages has driven rates down to record lows.
The 2.82% rate mortgage is available with or without drawdown and a sliding scale of loan to values (LTVs) is available dependent on age, for example, a customer aged 70 could access the rate with an LTV of up to 24% (for joint applications the LTV is up to 23%).
There is no upfront fee. The minimum loan amount is £10,000 and the product has fixed and early repayment charges (ERC). Customers can repay up to 10% of their loan each year without incurring an ERC.
Keith Haggart, managing director of Responsible Lending said: “Lifetime mortgages have become hugely popular, and increased interest from investors has inevitably followed.
“Consumers now benefit from an enormous range of products and the most competitive rates the industry has ever seen, cementing the place of lifetime mortgages as a primary option for later life borrowing.”
Ray Boulger, senior mortgage technical Manager at mortgage brokers John Charcol gives an assessment of the Lifetime Mortgage market and this new offering.
“The yield on long term gilts (government bonds) has fallen by nearly 1% over the last year,” says Boulger. “This affects the pricing of other long-term loans such as Lifetime Mortgages; hence interest rates on these mortgages has fallen sharply and has been hitting new lows over the last few months.”
Boulger acknowledges the new rate of 2.82% from Responsible Lending as one of the lowest in the market and says rates this low mean that even borrowers who want a long-term fixed rate and could qualify for a mainstream mortgage should now consider a Lifetime Mortgage.
“A Lifetime Mortgage is the only type of mortgage which allows borrowers the option each year of paying nothing or paying anything up to 10%. That in itself is a hugely attractive feature but coupled with a rate of under 3% fixed for life it becomes a very compelling proposition. The downside in most cases is an early repayment charge (ERC) higher than on most mortgages and relatively low maximum LTVs to qualify for the best rates. In addition, these mortgages are only available to borrowers over 55,” he says.
“At the 2.82% rate offered by Responsible Lending the debt takes more than 27 years to double but many people don’t realise most Lifetime Mortgages allow overpayments with no ERC of up to 10% per annum. This means that borrowers could pay the interest to avoid any roll up of debt or even pay off some of the capital as well to reduce the debt. Thus, a Lifetime Mortgage can effectively become an interest only or repayment mortgage if required with the added benefit that if the borrower’s circumstances change payments can be reduced or stopped.”
Boulger adds: “Whilst the interest rate will always be important it should be considered in conjunction with other features, depending on individual requirements. For example, most Lifetime Mortgages have ERCs for at least five years, and often much longer. The rate is higher but for someone who plans to move and perhaps downsize, maybe not then needing a mortgage, within, say, a couple of years a mortgage with no ERCs may be better value than chasing the cheapest rate.”
Further reading: Mortgages – why 80 is the new 60 as far as lenders are concerned