Equity release costs
 

Equity Release Costs | March 2024

Equity release allows homeowners aged 55 and over to access the wealth tied up in their property. However, there are costs involved with equity release that need to be considered. These include advice fees, valuation fees, legal fees, and interest rates.

This article provides an in-depth look into these costs, offering a clear understanding of how they’re calculated and the potential implications on your finances.

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How Much Does Equity Release Cost

Equity release costs include advice fees, arrangement fees, valuation fees, and legal fees. The advice fee covers the expense of receiving professional guidance, with a financial adviser determining if equity release is suited to your personal circumstances.

Advice fees typically range from £500 to £1500, but this depends on the complexity of the case. Therefore, it’s important to get a clear breakdown of all costs upfront. Even if you decide not to proceed, advice fees may still be charged.

Another equity release cost to be aware of, is the arrangement fee. Arrangement fees are paid to the lender for setting up the loan. Some equity release plans may offer cashback deals to help offset these fees.

However, it’s always wise to compare the overall cost, including the interest rate, before choosing a plan.

You may also face application costs, which are paid to the lender for processing your loan application. Depending on the equity release lenders, these fees may be rolled into the loan amount or paid upfront.

How Equity Release Costs Are Calculated

Several factors contribute to the calculation of equity release costs. Among them is the type of equity release plan you choose. Equity release costs vary based on the type of plan. The main types are lifetime mortgages and home reversion plans, which have different fee structures.

The valuation fee is another factor in the calculation. This is a fee you pay for the lender’s surveyor to value your property, which is a key factor in determining how much equity you can release. It’s also used to calculate the loan to value ratio, which in turn affects the interest rate. The interest charged to you can vary based on these calculations and the scheme you choose. 

Interest rates play a crucial role in the calculation of equity release costs. The interest rate is applied to the original loan amount and then compounded monthly or annually. Therefore, interest accrues on top of previous interest, causing the total amount owed to grow over time. Equity release interest rates range from 4% to 8%.

Lastly, your costs will also be influenced by the amount that you wish to release. This is because the larger the loan amount, the more interest will accrue. Consequently, releasing a large lump sum could result in higher costs over the long term.

Types of Equity Release Schemes

The two predominant equity release schemes are lifetime mortgages and home reversion plans. Both of these equity release products have different cost structures.

Lifetime mortgages are the most popular type of equity release scheme. With a lifetime mortgage, you borrow a portion of your home’s value at a fixed or variable interest rate. The loan, plus the interest accrued, is then repaid when you die or move into long-term care. The costs involved in lifetime mortgage products include advice fees, arrangement fees, application fees, and interest rates.

On the other hand, a home reversion plan involves selling a part or all of your home to a provider in return for a tax-free cash lump sum, a regular income, or both.

The costs for this type of plan are usually determined by advice fees, solicitor’s fees for legal work, and a valuation fee.

Costs of Lifetime Mortgages in the UK

There are several costs associated with lifetime mortgages in the UK. The initial cost is the advice fee paid to your equity release adviser. This fee covers their service in helping you to understand the implications of taking out a lifetime mortgage, as well as guiding you through the process.

You will also face arrangement fees, typically ranging from £600 to £3,000, depending on the specific lender and loan amount.

To help mitigate these costs, some lenders may even offer free valuations or cashback deals.

One of the most significant costs with lifetime mortgages is the interest rate you will face, with the interest rate on lifetime mortgages typically being higher than regular mortgages.

The interest is compounded, meaning interest is charged on the original loan and the interest that has already built up. This can result in the loan amount multiplying quickly. 

Moreover, if you decide to pay off your lifetime mortgage early, there might also be early repayment charges.

It is important to note that these charges can be substantial. Therefore, it’s important to seek professional advice before making payments, allowing you to make the best informed decision.

In addition, some providers may offer incentives such free valuations or cashback amounts to offset initial equity release costs.

However, before choosing a plan based on upfront incentives alone, remember to compare interest rates and overall costs.

Speak To An Equity Release Advisor Or Use the Equity Release Calculator Below To Estimate How Much You Can Borrow

The UK Care Guide works in partnership with Boon Brokers, one of the UKs leading equity release specialists.

You can contact them on 0333 567 1607 , or use the equity release calculator to estimate how much you can borrow.

Here is what Boon Brokers Offer

Whole of market access
Over a decade of experience
Great customer service

5 star client testimonials, on Trustpilot, about Boon Broker’s support and hands-on service

Call Boon Brokers on 0333 567 1607 to discuss your equity release requirements.

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All equity release and mortgage advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757. 

If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation.  By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.  

The fee we receive is used to help keep this site operational and to produce new content.  

Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

equity release interest rates

Home Reversion Plan Costs Explained

Home reversion plans involve you selling part or all of your home in return for a lump sum or a regular income. There are several costs involved with this type of equity release scheme.

The first cost is the advice fee, as mentioned earlier. This is typically a fixed fee paid to your adviser for their professional advice. 

The next to consider is the valuation fee, which is paid to a surveyor to determine the value of your property. The valuation fee is typically based on the house value and can vary depending on the size and location of your property.

Legal fees are another cost you’ll need to be aware of. These are typically paid to a solicitor to handle the legal work involved in the home reversion plan. The legal costs cover the conveyancing work necessary to transfer ownership of your property or a portion of it to the provider.

Lastly, you may also face consultation fees. This is an amount which is paid to a solicitor, in return for their independent legal advice. It’s important to understand that these fees are typically paid, whether you decide to proceed with a home reversion plan or not.

Comparing Equity Release Costs Across Providers

When you’re considering releasing equity from your home, it’s worth talking some time to compare equity release costs across different providers. These costs vary depending on a number of factors, including the type of plan, the interest rate, and the fees charged by the provider.

One of the key costs to compare is the interest rate. These rates can vary between lenders, often ranging from 4-6% but sometimes higher. Opting for a lower rate, where possible reduces interest costs over the life of the plan.

Comparing arrangement fees is a good idea. This is because some providers may offer lower arrangement fees, or even waive them entirely. However, these providers may have higher interest rates, making it important to look at the total cost.

The advice fee is another cost to compare. Whereas some providers may charge a fixed fee for advice, others may charge a percentage of the loan amount. 

Hidden Charges in Equity Release Plans

There are many hidden charges with equity release plans, meaning that you will need to be mindful of these. These hidden costs can include early repayment charges, partial repayments charges, and surveyor fees.

Early repayment charges apply if you decide to repay your equity release early. It is essential to understand your terms and conditions before you decide to repay early, as these charges can be substantial.

You can also face partial repayment charges if you decide to make voluntary payments to reduce your outstanding mortgage balance. These charges will depend on the terms and conditions of your plan.

Surveyor fees are also considered hidden costs, which are typically paid to a surveyor to value your property. Whilst some providers may offer a free valuation, this is not always the case.

Furthermore, some equity release plans have administration fees which are charged annually. Consequently, these ongoing fees should be factored into the total cost calculation. For full details of any annual or ongoing fees, make sure to consult potential providers. 

Implications of Equity Release Costs on Inheritance

Your inheritance can be impacted by the cost of equity release. This is because it is necessary that the loan secured on your property and the interest accrued is repaid when you die or move into long-term care. Compound interest is added monthly or annually, meaning the total amount owed can grow significantly over time. Therefore, this can reduce the amount left for your heirs.

There may also be tax implications to consider, as your estate may need to pay inheritance tax on the property. This will depend on the value of your estate and the current inheritance tax threshold.

Ways to Reduce Equity Release Costs

Fortunately, there are several things you can do to reduce your equity release costs. One way is by making partial repayment, helping to reduce the outstanding loan amount and the interest accrued.

You could also try choosing a plan with a lower interest rate. However, it’s important to consider all the costs involved, rather than just the interest rate.

Choosing a plan with a free valuation or cashback deal is another good way to reduce costs. However, these deals may come with higher interest rates or other charges which you will need to be aware of.

Finally, seeking professional advice can help you to understand all the costs involved and choose the most cost-effective plan for your situation.

Best Equity Release Interest Rates as of 24 February 2024

The table below shows you some of the best equity release rates, as of 24 February 2024, for lifetime mortgages from some of the leading equity release providers in the UK. 

Provider NameProduct NameInterest RateType of productOffers
Standard LifeHorizon 200 Drawdown5.26%FixedFree Valuation
Standard LifeHorizon 200 Drawdown Fee Free5.31%FixedFree Valuation
No application fee
More2LifeCapital Choice Ultra Lite Drawdown 15.46%FixedFree Valuation
No application fee
LV=Drawdown Lifestyle DD15.58%FixedFree Valuation
No application fee
Scottish WidowsFR15.60%FixedCashback
Free Valuation
No application fee
Standard LifeHorizon 280 Drawdown5.60%FixedFree Valuation
Legal & GeneralInterest Roll-Up 15.61%FixedFree Valuation
Legal & GeneralOptional Payment 15.61%FixedFree Valuation
LV=Drawdown Lifestyle DD25.63%FixedFree Valuation
No application fee
Legal & GeneralInterest Roll-Up 1 (no fee)5.65%FixedFree Valuation
No application fee

The equity release rates have been sourced by UK Care Guide from the Equity Release Supermarket website. These rates may have changed since this table was created and should be taken as indicative only. There may be other providers not listed on this table that could offer better deals.  In addition, the providers and products noted may not be right for your particular circumstances.  Therefore, they should only be taken as a guide, and we cannot guarantee their current accuracy. Please also note that we do not provide advice on or endorse any particular product listed here. The rate you are offered will depend on your individual circumstances and subject to lender approval. Therefore, we strongly recommend that you speak to an equity release adviser, who will be able to provide you with information on the latest rates that apply to you.

Speak To An Equity Release Specialist Today

Call Boon Brokers on 0333 567 1607 to discuss your equity release requirements and see what deals are available to you.

cost of equity release

Legal and Advisory Costs in Equity Release

A significant part of equity release costs are the Fl and advisory fees. Legal fees are paid to a solicitor to handle the legal work involved in the equity release plan. These costs cover the conveyancing work needed to transfer ownership of your property or a portion of it to the provider.

As mentioned previously, we know that independent advice fees typically range from £500 – £1500. This covers the adviser’s time to assess your situation, explain implications, and guide you through the process. It’s important to note that whether you decide to proceed with an equity release plan or not, these costs are typically paid. 

Although it represents an added upfront cost, independent legal advice is recommended for equity release. Before entering into any binding equity release agreement, this helps to guarantee that you fully understand the legal implications.

The Role of Equity Release Advice Fees

Equity release advice fees are costs paid to a professional adviser for their expert guidance on equity release schemes.

These fees cover the invaluable time, effort, and expertise of the adviser.

For instance, they work to understand your individual circumstances, assess the suitability of equity release for you, whilst also guiding you through the process.

As discussed previously, the cost of equity release advice varies between advisers. Some will choose to charge a fixed fee, while others may charge a percentage of the amount you plan to release. To avoid extra surprise costs later on, you should ensure these charges are clarified upfront. 

It’s also important to note that although advice fees may seem like an additional cost, the value of professional advice can be invaluable. Professional advice can help you to understand all the costs involved, the potential impact on means-tested benefits, and the effect on your estate. Consequently, you can make a well-informed decision.

Exploring Free Equity Release Calculator Benefits

A free equity release calculator is an online tool that provides an estimated figure of how much equity you could release from your home.

This tool can be a useful starting point, helping you to understand how much tax-free cash you could potentially unlock from your property. Then, you can compare this against equity release fees. 

The calculator will usually require you to input your age, property value, and information about any existing mortgage or loan secured against the property.

The results can provide a rough idea of how much equity release could provide you.

However, it is necessary to note that the figures which the equity release calculator generates are estimates. For a more precise figure and personalized advice, it’s advisable to consult with an equity release adviser.

Implications of Early Equity Release

Equity release schemes are designed to last for the remainder of your life, or until you move into long-term care. However, sometimes an early repayment of equity release needs to be considered, including if your circumstances change.

It’s important to understand that this can come with significant costs.

Early repayment of an equity release plan can involve an early repayment charge. This charge can be substantial, depending on the terms and conditions of your plan.

It’s designed to cover the lender’s costs and potential loss of profit due to the early termination of the plan.

The exact amount of early repayment fees will vary depending on your specific plan and its terms. Therefore, if you’re considering paying off your equity release plan early, it’s crucial to seek professional advice to understand the potential costs involved.

Decoding Upfront Costs in Equity Release

The upfront costs in your equity release process are the fees you need to pay at the start of the process. These initial payments can include advice fees, valuation fees, and application fees.

Some lenders may also charge set up costs, covering the administrative work involved in setting up the plan.

As we now know, the advice fee is paid to your adviser for their professional advice and guidance.

Alternatively, the valuation fee is for the lender’s surveyor to assess your property’s value, and the application fee is paid to the lender for processing and setting up your application.

These upfront costs need to be considered when thinking about equity release. They can add to the plan’s overall cost and will be part of the calculation when determining how much equity you can release from your home.

FAQ

1. How does equity release affect my tax-free cash?

Equity release allows you to unlock some of the value tied up in your property as tax-free cash. This can be received as a lump sum or in smaller, regular amounts, depending on your needs and the type of equity release scheme you opt for. The cash you receive is tax-free, as it is considered a return of capital rather than income.

The cash received from equity release does not impact income tax. On the other hand, it could affect eligibility for means-tested benefits as it is counted as capital.

2. Can I repay my equity release plan early?

Yes, you are able to repay your equity release plan early, yet it’s important to be aware that early repayment usually comes with costs. These are known as early repayment charges and they can be substantial, depending on your plan’s terms and conditions. These charges are in place to cover the lender’s costs and potential loss of profit due to the early termination of the plan.

If you’re considering paying off your equity release plan early, it’s crucial to seek professional advice to understand the potential costs involved.

3. Will I still need to make monthly payments with equity release?

One of the key benefits of equity release is that typically, there are no monthly payments to make. This is unlike a regular mortgage, where you make monthly payments to repay the loan and the interest. With equity release, the loan and the accrued interest are repaid when you die or move into long-term care.

Alternatively, it is important to note that some equity release plans do offer the flexibility to make voluntary monthly payments. This can help to reduce the interest that accrues, as well as the overall cost of the plan. 

4. What is negative equity and how does it relate to equity release?

Negative equity is a situation where the value of your property is less than the amount you owe on it. This can occur if property prices fall significantly after you’ve taken out an equity release plan. However, most equity release schemes in the UK come with a ‘no negative equity guarantee,’ providing users with peace of mind. 

This guarantee ensures that you or your estate will never owe more than the value of your property, even if its value falls below the outstanding loan amount. Consequently, you can’t pass on any debt from your equity release to your heirs. This guarantee provides peace of mind, but it’s always important to understand the terms and conditions of your plan.

5. How do adviser fees factor into the cost of equity release?

As discussed in the article, adviser fees can be a significant part of the cost of equity release. These are fees paid to a professional adviser which covers their time, effort, and expertise.

The price of counsel can differ depending on the advisor. Whilst some may charge a fixed fee, others may take a percentage of the money you intend to release. To prevent any surprise fees later on, it’s critical to talk about and comprehend these costs up front. You can make sure that equity release is the best option for you by understanding all the costs involved with it with the aid of good advice.

interest on equity release

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Where applicable, the adverts for Boon Brokers on this page have been signed off as a Financial Promotion by Boon Brokers Limited, to ensure that they are in compliance with Section 21 of FSMA. Boon Brokers Limited is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757.

The Age Partnership equity release calculator has been approved and provided by Age Partnership. Age Partnership is a trading name of Age Partnership Limited, which is authorised and regulated by the Financial Conduct Authority. FCA registered number 425432.

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If you take out a product from Boon Brokers, we will receive a fee for introducing you to them.

Unlike most equity release advisors, Boon Brokers do not charge any fees! Have a free consultation to see how they can help.

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0333 567 1607

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All equity release advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757. 

 

If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation.  By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.  

The fee we receive is used to help keep this site operational and to produce new content.  

 

Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

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