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Postcode lottery if you release cash from your home 

Older borrowers releasing cash from their homes face a postcode lottery that could end up costing them as much as £2,600.

Two major providers of loans to borrowers aged 55 and over have started to offer different rates to customers depending on where they live in the country.

The policy, introduced by Aviva and Legal & General, means someone who lives in the South East or London can end up paying thousands of pounds more than someone who lives in another part of the country, such as Cornwall, the Midlands or Scotland.

Postcode lottery: Aviva and Legal & General have started to offer different rates to customers depending on where they live in the country

More than 35,000 homeowners have taken out so-called equity release plans worth more than £2.5 billion over the past year.

These loans are similar to a regular mortgage but you don’t have to make any monthly payments and the interest is rolled up until you die, or go into care, and the house is sold.

That has made them very popular with older homeowners who are struggling to pay off interest-only mortgages, or whose pensions don’t stretch far enough for them to make home improvements, go on holiday or help younger relatives on to the housing ladder.

Until now, equity release lenders have set their rates based on the customer’s age, their loan size and the property value.

But now Legal & General and Aviva, the two largest equity release providers, are setting their rates based on where the customer lives.

If you live in London and the South East, Legal & General would charge a homeowner borrowing £71,500 against a house worth £325,000 a rate of 5.72 per cent on its Flexible Max Plus deal, according to figures compiled by equity release advice firm Laterliving Now!.

However, if the same borrower lived anywhere else in the country, they would be offered a rate of 5.66 per cent. 

After 20 years, the debt would stand at £215,113 — £2,585 less than someone living in London or the South East.

Aviva charges different rates to people based on their postcode.

In theory, that means two people living just streets away from each other in Surrey could be charged different rates.

The firm refused to disclose how much the rate can vary by postcode, saying only that the difference was ‘minimal’. 

The insurance giant is going to extreme lengths to keep the price gaps secret and has stopped financial advisers from providing quotes to journalists.

Aviva has also started letting borrowers release larger amounts of equity in areas where the housing market looks healthy.

The policy, introduced by Aviva and Legal & General, means someone who lives in the South East can end up paying thousands of pounds more than someone who lives elsewhere

For example, a 70 year old living in HG1, Harrogate, would be able to borrow 37.5 per cent of the value of their home, whereas someone living in TW11, New Malden, would only be able to borrow 36 per cent.

Simon Chalk, of Laterliving Now!, says: ‘People won’t be happy paying more than someone living a couple of hundred yards away.

‘Lenders typically set their prices based on the risk of not being able to sell the property when you die. There are a lot of lenders out there at the moment, so make sure you shop around so you get the best rate possible.’

Dean Mirfin, of equity release adviser Key Retirement, says: ‘Ultimately, what lenders are doing is trying not to get too much business in certain postcodes in case house prices fall in that region.

‘What you don’t want to see is that variance in rate becoming substantial. Ultimately, from a treating customers fairly perspective, you’ve got to justify why you are doing it — you can’t just do it on a whim.’

Legal & General, which has lent more than £900 million to equity release customers last year, says it introduced its new pricing structure in November to drum up more business outside of London and the South East.

A spokeswoman for Legal & General Home Finance, the insurer’s equity release division, says: ‘Historically, the lifetime mortgage market has been focused on the property wealth in London and the South East.

‘However, Legal & General Home Finance is committed to improving the customer awareness of lifetime mortgages outside of this area. 

This new strategy recognises the growing customer need and opportunity to reach out to new clients in the rest of the UK who have not yet accessed a lifetime mortgage.

‘As part of this strategy, we are piloting a discounted pricing offer to customers in the rest of the UK. We hope that these small contributions will go some way to growing the market and provide more customers with a better retirement.’

A spokeswoman for Aviva says: ‘If one postcode area has a more volatile housing market than another, then this could potentially present a greater risk to the resale value [of the home], which of course increases the risk we carry. 

‘Our rates would therefore differ between these two areas because of the increased risk.

‘While postcodes have a minimal impact on interest rates, their impact is mainly seen on the maximum loan-to-value rates we offer. As most of our customers do not borrow the maximum available, in practice this impacts very few customers.’

p.thomas@dailymail.co.uk

 



Read more at DailyMail.co.uk


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