How GILT Yields Impact Equity Release
If you are considering taking out an equity release loan anytime soon, then you need to be made aware of the different factors that impact equity release.
There are a number of different factors that will influence how much you might be able to borrow, what you might be charged in interest and what you might be charged if you choose to repay some of your loan early.
One of the biggest factors that will impact equity release is a GILT yield. GILTS are UK Government bonds that fluctuate on a daily basis.
Essentially, the higher the GILT yield, the higher the interest rate will be. Below is more information on how GILT yields work as how they impact equity release loans.
Please call our 24-Hour Helpline for the Best Equity Release Companies & Interest Rates: 0330 058 1579
What is a GILT Yield?
GILT yields are UK Government bonds that influence a range of factors throughout the financial industry.
They fluctuate on a daily basis and determine how much the Government needs to borrow. They have a direct impact on interest rates, as well as a number of different factors.
The GILT market consists of two different types, including conventional and index gilts [1].
Fun fact, they are called ‘GILTS’ because the paper certificates they used to issue out for bonds and GILTS had a gilded, golden-like edge [2].
Whilst they’re incredibly important to understand and consider, there are also a number of different factors that influence interest rates when it comes to equity release, including the value of your property, your loan-to-value ratio, your age and your health. Different lenders will also offer different interest rates.
Please call our 24-Hour Helpline for the Best Equity Release Companies & Interest Rates: 0330 058 1579
How do GILT Yields Impact Equity Release?
GILT yields impact equity release loans in a number of different ways.
For example, they impact the interest rate you will be offered as well as the early repayment charge you might be fined if you chose to repay some of your equity release loan early [3].
1. Equity release interest rates
Equity release interest rates are dependent on several different factors, including which lender you opt for, the size of your house as well as your age and your health. GILT yields also have a significant impact on interest rates. For example, when GILT yields increase, so do equity release rates.
When it comes to equity release interest rates compared to GILT rates, most equity release lenders tend to set their equity release rates 1% – 2% above the current GILT rate.
2. Equity release early repayment charges
How much you will be charged in an early repayment fee depends on GILT yields. When GILT yields are high, early repayment charges are usually quite low.
When GILT yields are low, early repayment charges are usually high.
Most early repayment charges which are linked to GILT yields are usually capped at 25% of the total amount of money you have borrowed.
Most lenders tend to cap their equity release early repayment fees at 10% before they start to charge money.
Most people who take out a lifetime mortgage will never have to repay an early repayment charge, as they don’t repay their loan until after they pass away.
Once this happens, your house will be sold and the proceeds from the sale of the house will pay off the loan in full.
It is important to understand that GILTs shouldn’t impact fixed or defined early repayment charges, as these should be fixed.
However, they will have an impact on impact variable early repayment charges, which is why they’re important to understand.
Please call our 24-Hour Helpline for the Best Equity Release Companies & Interest Rates: 0330 058 1579
What impact does the base rate have on equity release rates and borrowing?
Equity release interest rates are not directly linked to the Bank of England’s Base Rate. However, studies have shown that when the Bank of England’s Base Rate increases, interest rates also rise.
This includes equity release interest rates. By doing so, they aim to keep inflation down.
Inflation means that the Bank of England’s Base Rate rises, which encourages people to save money rather than borrow, via products such as equity release.
Luckily for those hoping to borrow via an equity release scheme, all interest rates will be fixed.
This means that your interest rate will remain the same for the duration of your plan, which for most people lasts for as long as they live.
This means that the amount of interest they will pay will stay the same for the duration of your loan, meaning that you should be able to work out how much interest you will need to pay each year until you pass away.
Please call our 24-Hour Helpline for the Best Equity Release Companies & Interest Rates: 0330 058 1579
When is the right time to take out an equity release plan?
At Equity Release Warehouse, we know how important it is to take out a loan that is right for you.
Timing is also incredibly important, as you must make sure that it is the right time for you.
Whether or not it’s the right time for you will depend largely on your personal circumstances.
For some people, they want to wait for the right interest rates, whereas some others want to wait until they have consolidated their debts and paid off their mortgage in full before taking out an equity release loan.
For some others, they choose to take out an equity release loan as they want to enjoy their retirement.
They might choose to take out an equity release loan in order to pay for a once in a lifetime holiday, make some home improvements or help their loved ones or grandchildren with the cost of further education.
Others might choose to take out an equity release loan when interest rates are low.
However, it is important to understand that all interest rates are fixed when it comes to equity release, meaning that they will not fluctuate with the Bank of England’s Base Rate.
If you are considering taking out an equity release loan but aren’t sure if now is the right time, then speak to a member of our team at Equity Release Warehouse.
Our team of specialists are on hand to provide you with the very best information but won’t ever put any pressure on you to release equity from your home.
It is simply our job to provide you with the relevant and necessary information you need to make a decision.
Please call our 24-Hour Helpline for the Best Equity Release Companies & Interest Rates: 0330 058 1579
Speak to Equity Release Warehouse
If you are considering taking out an equity release loan but are confused about GILT yields and interest rates, then you need to speak to a member of the team at Equity Release Warehouse.
Our team of specialists are on hand to provide you with all of the relevant information you need to make an informed decision without ever putting any pressure on you to make a decision there and then.
For more information on how you might be able to release equity from your home, call a member of our team today on 0330 058 1579 or by visiting our website by searching www.equityreleasewarehouse.com.
References
[1] https://www.dmo.gov.uk/responsibilities/gilt-market/about-gilts/
[2] https://commonslibrary.parliament.uk/what-are-gilts-a-simple-guide/
