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Ask Rachel
Working in the financial industry for over 30 years, Rachel Thrussell is the leading independent expert on UK savings products. Her views are constantly in demand from both the industry and the press.
Why is it that ISAs seem to be paying less than similar length fixed rate bonds?
There are a couple of reasons for the difference between rates. The first is that the best bond rates are typically being offered by challenger banks, who are new to the market and trying to establish themselves. As new entrants, these providers don’t usually offer ISA products straight away, as these typically involve more administration. If you were to look at just the banks that do offer both bonds and ISAs, it would become apparent that both rates tend to be pretty much on a par with each other.
This leads onto the second potential reason why ISA rates are lower, which is that by having to allow transfers out, banks must price into their ISA rates the chance that they may lose the money from their coffers before the term ends. With fixed rate bonds, providers can mitigate against this by adding restrictions that prevent early access to funds.
This week's
average rates
| No Notice | 0.49% |
| Notice | 0.79% |
| Cash ISA | 1.19% |
| 1 Year Fixed Rate Bond | 1.25% |
| 2 Year Fixed Rate Bond | 1.51% |
| 3 Year Fixed Rate Bond | 1.70% |
| 4 Year Fixed Rate Bond | 1.97% |
| 5 Year Fixed Rate Bond | 2.08% |
| 24 April 2018 | |
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Property withdrawals double in two years
The amount of housing equity that older homeowners are withdrawing from their properties has more than doubled in the past two years, as the importance of equity release as a means of supplementing income in retirement continues to grow. According to the latest Equity Release Council data, nearly £10m of housing wealth was withdrawn each day in the first three months of the year, compared to £4.3m in the same period during 2016. A similar trend is also apparent when looking at new customer numbers during the first three months of the year, which have almost doubled from 5,175 to 10,195 over the last two years.
This impressive increase in demand has also been met by an increase in product options available to consumers, which jumped from 69 in January 2017 to 86 a year later. In turn, the heightened competition has driven greater innovation in the sector, with new flexibilities being introduced. As a result, over two-thirds (70%) of product options now offer consumers the choice to make ad-hoc, penalty-free, voluntary or partial repayments of their loan.
As for the type of products that are proving popular, around two-thirds of new customers chose the drawdown plan option, which typically sees smaller amounts of equity withdrawn initially compared with lump sum plans, with an extra amount reserved for future use. Importantly, this limits the interest owed, as it is only charged as funds are withdrawn.
Among new drawdown customers in the first quarter of the year, the average initial instalment they took was £64,797, some 11% higher than a year previous. For the one in three new customers opting for lump sum lifetime mortgages, the average amount taken of £96,483 was broadly unchanged on the £96,340 reported 12 months earlier. Meanwhile, the number of existing drawdown customers returning to make withdrawals from their agreed reserves grew by 26% year-on-year, from 6,019 a year ago to 7,588. These returning customers made an average withdrawal of £11,453.
Commenting on the figures, Rory Joseph, director of Equity Release Mortgage Advice, said one of the biggest growth areas his advisory firm had seen was the number of people seeking to release equity in order to help their children get on the property ladder. “Plus there are a large number of existing interest-only mortgage borrowers who have come to the end of their term and need money to pay off the capital part of these loans,” he adds. “We’re also seeing individuals using equity release to pay off other debts, renovate and refurbish their homes, plus covering other retirement costs.”
Noting that equity release is an area “where advice is crucial”, Mr Joseph predicts that this is a market which, along with residential later life lending, “is only likely to grow because of underlying societal changes such as greater longevity of life, poorer pension provision, and a need to support the family”.
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