Lenders must show rates like for like

How does the old poem go about keeping your head when all around you are losing theirs? Despite the rise in the base rate the equity release market stands apart from the mainstream and provides more great news for advisers after the recent rate cut by GE Life which saw its rate fall to 5.95% annual. Not bad for a rate fixed for life when the base rate is at 4.75%.

By June this year we had seen nine rate rises which sparked concerns that the tide was turning, but following a steady period GE has again shown its consistent drive to be a market leader in equity release. This is good news for advisers and consumers.

But despite providers’ best efforts I still have one concern about the equity release market and this is about the lack of clarity when it comes to interest rates. The APR does not help much as this represents a movable feast in the lifetime market, and consumers and advisers must be sure that they are comparing apples with apples when it comes to the illustrated terms the APR is based on.

The lack of clarity hinges on the fact that providers use compound rates that are calculated either monthly or annually. This continues to outwit advisers as well as consumers who do not look at the small print.

Only in the past week I had an adviser from another brokerage quote me one of the top monthly compound rates which, when compared like for like on an annualised basis, does not even feature in the top five.

The only time this problem will be eradicated is when lenders show their rates like for like. Considering that this has been requested of them for some time, it has to be said we have seen little in the way of change being made to address the need for clarity.

To shed some light on this, the box above shows the top five rates from Safe Home Income Plans providers, all annualised so that nothing muddies the water.

Also given is an example of the cost of borrowing 50,000 over 15 years. Who knows, maybe one day we won’t need to do this.