Nationwide has become the first major lender to offer equity release products to older borrowers.
The high street lender enters a market which has previously been restricted to insurers – such as Aviva and Legal & General – and smaller specialist providers.
Nationwide says it’s targeting the market to help over-55s release the £1.8 trillion of wealth that they have tied up in property.
Interest rates start from 3.8% but the exact cost of a loan will depend on the age of the applicant, the size of the loan, and whether it is a single or joint application.
The upper age limit on the product is 84 and loans will be available through specialist advisers Age Partnership.
What is equity release?
Equity release plans, sometimes known as lifetime mortgages, are targeted at those aged over 55 who are looking to unlock cash from their home.
Customers must be aware that all interest charges are rolled up, meaning that interest is charged on the interest. This means the cost of an equity release loan can mount up quickly. However, there are guarantees in place which mean the customer can never enter negative equity, which occurs when the value of an asset used to secure a loan is less than the outstanding balance on the loan.
Equity release customers do not need to make any ongoing payments. Instead, the outstanding balance is paid when the customer dies or enters long-term care.
‘We hope this will spark further innovation’
Henry Jordan, Nationwide director of mortgages, says: “More people are living longer and many older people have significant wealth tied up in their property, with the over 55s holding £1.8 trillion in property.
“Nationwide has a long-term plan to increase choices for borrowers in this age group, who have not been well catered for by mainstream mortgage lenders and remain underserved by standard mortgage products.”
Nationwide has also backed the Financial Conduct Authority’s plan to boost choice in the equity release market. The regulator says older borrowers with maturing interest-only mortgages are underserved and it wants to make it easier for mainstream lenders to offer products.
Mr Jordan adds: “We welcome the FCA consultation on later life borrowing and we hope this will spark further innovation in this sector going forward.”