Retirees pay over the odds on equity release plans

Retired homeowners in the UK are paying significantly over the odds on equity release deals by going direct to a product provider rather than an independent adviser, reveals Key Retirement Solutions, the equity release specialist.

Many consumers believe that by cutting out an adviser you will save money on fees, but when it comes to equity release, this isn’t typically the case. Some of the big lifetime mortgage lenders charge customers a higher interest rate if they go direct to them rather than going through an adviser for the very same deal.

For example, a retiree aged 65 years who borrowed £50,000 over 20 years directly with Prudential would pay 6.84 per cent, costing them £187,779 over 20 years. However, the very same deal would cost them £175,852 at 6.49 per cent if they went and sought advice with an adviser – saving a staggering £11,928over the term. Over shorter terms the different in repayments are still substantial, standing at £1,133 over five years and £3,128 over 10 years.

Even If the fee charged for advice is taken into consideration the savings are still substantial. Key Retirement Solutions, on a loan of £50,000 for a lifetime mortgage, charges a fee of £795 leaving a saving of £11,133 for not going direct to the provider.

To date in 2007, the demand for equity release is up 10 per cent on the previous year, while the amount of equity released from UK homes is up by 26 per cent to date having now broken the £1 billion barrier1. This is expected to keep on rising as more and more people see their home as their biggest asset to help fund their retirement.

Dean Mirfin, Business Development Director at Key Retirement Solutions, said: “People automatically assume that by cutting out the middle man their deal will be much cheaper. But the extra amount that is charged by some direct providers versus getting the same deal with an adviser is astonishing. What is more fundamentally important here is that equity release isn’t a straightforward commodity product that should be bought solely on price.

“There are many factors to take into consideration and equity release isn’t suitable for everyone. This is why it is even more important to seek specialist advice. A direct provider certainly won’t tell people that they get a better rate if they go through an intermediary.”

The difference in the best and the worst rates offered by providers in the market makes it a difficult path for consumers to navigate alone. Not only can they have access to better rates via an adviser but also many deals are just not available directly, so the direct market is a much smaller place. The current difference between the lowest and highest rates available is 1.92 per cent, this means that the cost difference of borrowing the same £50,000 over 20 years is an incredible £71,131.

The two major lenders who charge different rates to those going direct are Norwich Union and Prudential. Prudential currently charge .35 of a per cent higher, and Norwich Union .25.