The UK’s unique economic struggles are by no means news; millions of households – and practically every family – have been touched by the rampant rise in living costs from groceries to heating and electricity. The scale of the crisis has trivialised many households’ attempts to control their finances and plan for a more secure future, where retirement savings are already at risk of taking remaindered form to evergreen inflation.
People in and approaching retirement are, consequently, relying increasingly on additional financial products to supplement their income and better manage their standard of living. One such product is the lifetime mortgage, a popular form of equity release scheme that allows homeowners over 55 to borrow against their property. But such products are unavoidably influenced by the present cost-of-living crisis too; how, exactly?
Inflation and Interest Rates
First, it is important to understand the interrelationship between inflation and interest. Inflation, of course, describes the rate at which certain costs and values increase over time. As a result of several complex international factors, most infamous of which being our departure from the European Union and its favourable trade frameworks, our rate of inflation spiked considerably towards the end of 2021. It remains high at the time of writing, too, at 4.2% – though this is a significant climbdown from the 10+% rates recorded the year prior.
Rising costs are spurred by a number of variables, and difficult to properly control. Still, the Bank of England, with its autonomous control over national financial stability, has some tools it can employ to limit the potential for spiralling inflation. The one it chose to employ was a hike to national interest rates – a process designed to reduce the ‘heat’ in markets and disincentivise expenditure.
Interest Rates and Financial Products
The rationale behind this is explained by the impact of interest rate rises on financial products – including equity release. Higher interest rates make borrowing more expensive, as more must be paid back per pound borrowed than before. This works both ways, though, where savings accounts and other such repositories earn savers more in terms of interest.
How to Proceed
For the average retiree, there isn’t much to change about one’s approach; if considering a lifetime mortgage, using an equity release calculator should be the first step in the process in order to understand what may be available. In times of high interest, particularly volatile ones like these, it is important to scan the market for favourable rates and for any indication of shrinking inflation; that said, many equity release products do not fix their interest rates, and can be renegotiated.
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