How Much Does Equity Release Cost in 2024?

Costs can include setup fees, valuation fees, advice fees, and interest rates, which accumulate over time. It's important to consider these costs as they will reduce the equity left in your home.
  • Last Updated: 17 May 2024
  • Fact Checked Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui
What Are the Typical Costs Involved in Equity Release in the UK? Learn How to Navigate the Complex World of Equity Release Costs and Safeguard Your Retirement Dreams. Read On...
Every Investor Promise
Every Investor Promise
At Every Investor, our aim is to assist you in making informed financial choices. We are committed to maintaining rigorous editorial standards, yet it is important to note that our content may include references to our partner’s products. For full transparency, here is an overview of how we earn money.
Key Takeaways
  • Equity release in the UK costs you between £1,500 and £3,000, covering legal, advisory, and valuation fees.
  • Sneaky fees generally aren’t a concern here, but always comb through the fine print before you sign and minimise expenses by shopping around, playing with drawdown options, or negotiating fees.
  • The final bill hinges on your chosen plan, current interest rates, your home’s worth, and any added charges, but remember that costs fluctuate with interest rates and what you pay for professional advice.

Understanding what equity release costs can be a crucial aspect of navigating homeownership and retirement planning. 

However, recent data suggests that many homeowners have been able to manage their equity release costs.

In 2022, over 90,000 customers made penalty-free partial repayments, reducing their debt by £102mln and saving £116mln in future interest costs (as reported by the Equity Release Council).1 

Does this mean that equity release costs are more manageable than you may have thought? 

In This Article, You Will Discover:

    By understanding the structure of fee structures, interest rates, and other processes that influence the amount of equity you can release, you can navigate the associated costs wisely.

    Our dedicated team at Every Investor has conducted extensive research to compile the most accurate and current information on equity release costs. All the content we publish goes through a rigorous fact-checking process and we strive to update our information as market conditions change.

    Who Offers the Lowest Rates in 2024?

    Discover the Lowest Rates & Save

    Request a FREE call back & discover:

    • Who offers the LOWEST rates available on the market.
    • Who offers the HIGHEST release amount.
    • If you qualify for equity release.
    Key Costs of Equity Release

    What Is Equity Release In The UK?

    For those aged 55 and older, equity release in the UK is an option to access the financial value of their home without selling it.

    This arrangement can yield a lump sum, periodic income, or both, secured against the homeowner’s property.

    UK-specific equity release schemes include lifetime mortgages and home reversion plans.

    These are beneficial for supplementing retirement incomes, paying for home refurbishments, covering eldercare expenses, and providing a flexible financial resource for later life planning.

    How Much Can You Expect to Pay for Equity Release in the UK?

    The amount you can expect to pay for equity release in the UK varies, depending on the plan’s interest rates and any associated fees, impacting the total amount repayable over time.

    What Are the Costs of Equity Release in the UK?

    The costs of equity release in the UK include interest rates, setup fees, and potential early repayment charges, all of which affect the total amount repayable, varying greatly depending on the provider and individual circumstances.

    Arrangement fees usually range between £500 and £800, legal fees between £500 and £1,500, and valuation fees depend on the property’s value.

    Broker’s fees can be up to 2% of the total amount released.

    It’s crucial to remember that additional costs, such as early repayment charges and interest rates, should also be considered.

    Early repayment charges can be substantial, often reaching 25% of the initial loan if repaid within the first 5 years.

    Interest rates on equity release schemes average around 5.25% to 6.30%, but can be lower or higher depending on market conditions and the lender’s policies.

    Hence, it’s always advisable to seek professional financial advice before committing to an equity release.

    How Much Does Equity Release Really Cost?

    The true cost of equity release includes interest accumulation, advisory fees (advice, application, surveyor valuation, and solicitors’ fees, as discussed above), and potential early repayment charges, impacting the final amount to be repaid.

    If early repayment charges may apply, you should keep potential unforeseen costs (like the loss of benefits) in mind. 

    The precise amount relies on factors such as the selected plan, the provider, and the borrower’s circumstances.

    What Are the Different Costs Associated With Various Equity Release Plans?

    Various equity release plans come with different costs, including interest rates, arrangement fees, legal fees, and potentially early repayment charges.

    How Do Costs Compare Across Different Equity Release Plans?

    Costs across different equity release plans vary, with differences in interest rates, fees, and charges impacting the overall financial commitment.

    Equity release plans, primarily lifetime mortgages and home reversion schemes, exhibit distinct cost structures.

    Lifetime mortgages, where borrowers take a loan against their home’s value, typically involve interest charges that compound over time, increasing the loan amount.

    Conversely, home reversion schemes, involving the sale of a home portion for a lump sum or regular payments, do not accrue interest, but the homeowner effectively loses the sold share’s future value.

    The choice between these plans hinges on individual financial goals, the homeowner’s age, and market conditions, impacting the overall affordability and suitability of each option.

    What Are the Equity Release Set-Up and Scheme Costs?

    Equity release set-up and scheme costs encompass arrangement fees, valuation fees, and legal charges, contributing to the initial expense of obtaining the plan.

    Equity release set-up costs happen to be one of the disadvantages of equity release, with these costs typically ranging from £1,500 to £3,000, depending on the lender.2 

    In the following discussion, we will explore the details of each charge.

    What Are the Equity Release Advice Fees?

    Equity release advice fees are the fees that cover the cost of consulting with a financial adviser to explore suitable options and tailor plans to individual financial situations.

    Advice fees for equity release advisors are typically paid upon deal completion, with initial consultations often being free. 

    Alternatively, some arrangements may include these costs in the commission, which are then incorporated into the total cost of the equity release product.

    To avoid surprises, it is advisable to clarify the advisor’s payment method before the consultation.

    What Are the Application or Administration Fees for Equity Release?

    Application costs or administration fees are the fees that cover equity release setup tasks like background checks and document verification. 

    While these costs vary among providers, homeowners typically pay them as part of the overall equity release plan expenses. 

    However:

    Reviewing each provider’s terms and conditions is necessary, as some may include these costs in the loan amount.

    What Are the Surveyor’s Valuation Fees in Equity Release?

    Surveyor’s valuation fees are fees that involve the cost of a professional assessment of your property’s market value by a professional registered with the Royal Institute of Chartered Surveyors (RICS), typically required by lenders for equity release plans. 

    Homeowners generally pay these fees as part of the setup costs, which may need to be settled upfront; however, some lenders may offer a free property valuation.

    What Are Equity Release Solicitors’ Fees?

    Solicitors’ fees, an essential part of equity release, cover legal matters. 

    Following the ERC’s recommendation, homeowners should seek independent legal advice from an experienced solicitor to comprehend their rights and responsibilities.3 

    The homeowner typically pays these costs during the setup phase, which are separate from the provider’s legal fees.

    Are There Examples of How Equity Release Costs Vary by Plan and Property?

    Yes, there are examples of how equity release costs vary by plan and property, with differences in interest rates and fees tailored to the property’s value and the chosen financial product.

    For instance, a lifetime mortgage on a high-value property in a desirable location may attract lower interest rates due to the lower perceived risk, whereas a home reversion scheme might offer a larger cash sum upfront for the same property.

    Similarly, properties with certain restrictions or in less sought-after areas may see higher costs or receive lower valuations in home reversion plans.

    The variability underscores the importance of personalised advice in selecting the most cost-effective equity release option.

    Can You Avoid Additional Fees in Equity Release?

    Yes, it’s possible to avoid additional fees in equity release by carefully selecting plans with no or low setup costs and being aware of conditions that incur charges.

    How Are Equity Release Broker Fees Calculated, and Can You Avoid Them?

    Equity release broker fees are typically calculated as a percentage of the loan amount or as a fixed fee, and avoiding them may be possible through direct lender negotiations.

    These fees compensate brokers for their advice and services in finding a suitable equity release plan.

    Some brokers may waive these fees for higher loan amounts or offer a no-fee model, incorporating their compensation into the plan’s interest rates or charges.

    Avoiding broker fees altogether may be challenging, but shopping around and negotiating terms can help minimise costs.

    What Are No-Fee Equity Release Options, and How Do They Work?

    No-fee equity release options offer a way for homeowners to access the equity in their homes without upfront costs, working by typically forgoing application, valuation, and legal fees, reducing initial expenses.

    However, they may come with higher interest rates or include specific conditions, such as a minimum loan amount.

    No fee options are designed to make equity release more accessible, but careful comparison is essential to ensure they provide long-term value compared to traditional equity release plans.

    What Additional Costs Can You Expect With Equity Release?

    The additional costs you can expect with equity release primarily include early repayment charges and accrued interest. 

    What Are Equity Release Early Repayment Charges?

    Equity release early repayment charges (ERCs) are fees that come into play if you repay the loan before the prescribed length of the contract has ended.

    This may happen if you decide to move and can not take your loan with you, or if you change your mind about your equity release plan.

    Important:

    Early repayment charges can be substantial on an equity release plan. 

    These charges usually work on a sliding scale, decreasing as time passes4, but make sure you are aware of how they are applied (as stipulated in your loan agreement). 

    Do You Pay Interest on Equity Release?

    Yes, you do pay interest on equity release, which accumulates over the loan’s duration and is repaid along with the principal amount, usually when the property is sold.

    Interest on equity release plans, calculated on a compounding basis, can significantly increase your total debt if no repayments are made. 

    Even though repayments are not mandatory, choosing monthly payments can help mitigate interest accumulation.

    Why would that be a good idea? 

    Typically, these plans conclude when you pass away or enter care, meaning a plan started at the age of 62 could accumulate 28 years of compound interest by the age of 90, demonstrating the potential scale of interest costs.* 

    *This is an indicative scenario.

    What Unforeseen Costs Are Associated With Equity Release?

    Unforeseen costs in equity release can include increased interest rates, early repayment charges, and maintenance obligations, potentially affecting the overall financial outcome.

    Potential costs to be mindful of:

    • Equity release may cause a reduction in available equity for future needs, as the accumulated interest on the loan can quickly eat into the home’s value, leaving less room for further borrowing. 
    • Equity release can decrease the amount of inheritance left for loved ones because the sale of the property often goes towards loan repayment. 
    • The income from equity release may affect your eligibility for means-tested benefits, both now and in the future, which could result in an unexpected loss of income. 
    • Should the homeowner wish to move to a less expensive property in the future, the new property may not provide enough equity to cover the outstanding loan, potentially necessitating an early repayment of some of the loan amount. 

    Furthermore, while equity release schemes supervised by the Equity Release Council do not carry the risk of negative equity, it is crucial to note that other costs, such as fees associated with changing providers, can also come into play, contributing to the overall expense of equity release.

    What Factors Significantly Affect the Total Cost of Equity Release?

    Factors that significantly affect the total cost of equity release include the type of equity release plan, the property’s value, the homeowner’s age, and prevailing interest rates.

    Which Factors Influence the Total Cost of Equity Release?

    The factors that influence equity release costs include the chosen plan, interest rate, your property value, homeowner’s age and health, and provider’s terms. 

    Early repayment charges can also impact the costs if the loan is repaid before the agreed-upon term. 

    How Does the Type of Plan Influence Equity Release Costs?

    The type of plan significantly influences equity release costs, with variations in interest rates, fees, and repayment options dictating the overall financial impact.

    Lifetime mortgages involve loan repayments with accrued interest upon death or moving into care, with costs influenced by the chosen interest rate and repayment plan. 

    Home reversion involves selling a portion or all of your home for a lump sum or regular payments, with costs varying based on the sold portion and the company’s terms.

    How Do Age and Health Affect Equity Release Costs?

    Age and health directly affect equity release costs, with potentially lower interest rates for older applicants or those with certain health conditions, reflecting the anticipated loan duration.

    Equity release providers consider these factors to calculate the releasable amount, using actuarial risk, a process that employs statistical models and data to manage financial risks.5 

    Younger borrowers pose a higher risk due to a longer potential loan period and life changes, whereas older or less healthy borrowers present a lower risk because of their shorter life expectancy. 

    Lenders determine eligibility and releasable amounts based on these factors and their own risk criteria.

    How Does Property Value Influence Equity Release Costs?

    Property value influences the cost of equity release by determining the available equity, affecting the loan size, and accruing interest. 

    The loan-to-value (LTV) ratio, typically ranging from 20% to 60%6, represents the borrowable percentage based on your property’s value. 

    A professional surveyor assesses this value, considering factors such as market conditions, property size, location, condition, and unique features like solar installations.

    What Impact Do Interest Rates Have on Equity Release Costs?

    Interest rates have a significant impact on equity release costs, determining the amount of debt that accumulates over time and ultimately affects the total repayable amount.

    In short:

    Higher rates cause the debt to grow faster, whereas lower rates slow the debt’s growth. 

    Luckily:

    You are protected by an Equity Release Council product standard that requires all lifetime mortgages to have fixed or capped variable rates.7

    Note, however, that these rates may still be higher than traditional mortgage rates, which could result in higher total costs over the long term

    Interest rates can vary among equity release providers, so it is advisable to compare offers from different lenders. 

    How Do Provider’s Terms Affect Equity Release Costs?

    A provider’s terms directly affect equity release costs, with factors like interest rates, fees, and repayment conditions dictating the overall financial commitment required.

    Provider terms worth considering:

    • Interest rates, as previously mentioned, determine how much the loan grows over time, and different providers may offer different rates, thus affecting the cost.
    • Early Repayment Charges are fees that are levied if you decide to repay the loan earlier than agreed. These charges can vary greatly between providers, and in some cases, may be substantial.
    • The flexibility of the plan, such as the option to make partial repayments, drawdown additional funds, or the ability to move the plan to a new property, can also impact the cost, depending on how you use these features.

    Seeking independent financial advice can provide valuable insights and help you navigate the specific fees and terms of multiple regulated providers to select the most suitable option for your circumstances.

    What Is the Long-Term Impact of Interest Accumulation on Equity Release?

    The long-term impact of interest accumulation on equity release can significantly increase the debt over time, affecting the property’s equity and the inheritance left for beneficiaries.

    For lifetime mortgages, the interest compounds over the loan period, meaning the amount owed can grow substantially over time.

    This can reduce the estate’s value inherited by beneficiaries and potentially consume the property’s total equity, especially if the homeowner lives longer than anticipated.

    Understanding the implications of compound interest is crucial for those considering equity release as a financial solution.

    How Can I Minimize Equity Release Costs?

    You can minimise equity release setup costs by choosing plans with lower interest rates, making voluntary repayments, and carefully assessing the need for additional features or services.

    These include:

    • Comparing different providers to find a favourable interest rate. Most equity release providers have equity release calculators on their websites which will give you a rough idea of how much equity you may be able to release. There are also comparison sites, like ours, where you can consider the pros and cons of the different providers.
    • Assessing the reputation of different providers through online reviews and references. Look at independent sites such as Trustpilot, and do not go purely on the reviews on the provider’s website.
    • Enlisting the help of an advisor to determine the most economical plan for your situation.
    • Opting for a drawdown lifetime mortgage to only borrow what you need when you need it, reducing unnecessary interest. 
    • If possible, considering regular interest payments to prevent compounding of interest.
    • Understanding all the fees involved and ask your provider if any can be negotiated or waived.

    Look for an independent equity release advisor, who is an Equity Release Council member and authorised and regulated in the UK by the Financial Conduct Authority.

    Frequently Asked Questions About Equity Release Costs

    How Much Should I Expect to Pay for Equity Release Advice in the UK?

    Are There Hidden Equity Release Costs I Need to Be Aware Of?

    Can You Choose Not to Make Monthly Repayments to Minimize Costs?

    Does Equity Release Cost Differ by Provider?

    What Are the Key Factors That Influence Equity Release Costs?

    When Do You Pay Equity Release Fees and Charges?

    What Are the Equity Release Qualification and Early Repayment Costs?

    Can Partial Repayments Reduce Your Equity Release Costs?

    How Do Capital and Interest Repayments Affect Equity Release Costs?

    How to Find the Equity Release Plan With the Lowest Costs?

    What Hidden Costs Should You Consider in Equity Release?

    Are There No Fee Equity Release Options Available?

    How Does Choosing Not to Make Monthly Repayments Affect Costs?

    What Are the Costs If You Move or Sell Your Property With Equity Release?

    What Are the Equity Release Implications on Means-Tested Benefits?

    How Competitive Are Equity Release Costs Compared to Other Borrowing Methods?

    Can Providers Offer a Detailed Breakdown of Equity Release Costs?

    What Are the Interest Rates on Equity Release?

    How Does Loan-to-Value Ratio Affect Equity Release Interest Rates?

    Is Tax Payable on Equity Release?

    Is It Worth Paying a Product Fee on Equity Release for a Better Rate?

    What Is the Impact of Capital Gains on Equity Release?

    Concluding Thoughts on Minimising Equity Release Costs

    Understanding and carefully evaluating the costs associated with equity release is crucial for making informed financial decisions. 

    From application fees and surveyor’s valuation fees to solicitors’ fees and interest charges, each expense plays a role in the overall cost of your equity release plan. 

    Remember to consider factors such as your age, health, property value, and loan-to-value ratio when assessing the costs involved. 

    Through careful research, comparing providers, and seeking independent financial advice, you can potentially reduce these costs and enhance your financial benefits.

    Speak to a qualified equity release broker or advisor if you wish to find out more about equity release and whether this type of product could be a good fit for you.

    By being proactive and well-informed, you can more effectively navigate the world of equity release costs, which could contribute to a secure retirement.

    Related Articles
    Scroll to Top