How Can You Secure the Best Equity Release Rates in 2024?

Looking for the Best Rate on an Equity Release Plan? Wondering Which Factors Affect Equity Release Rates and How Interest Rates on Equity Release Work? Find Out Here.
  • Last Updated: 12 Feb 2024
  • Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui

Key Takeaways:

  • Current equity release interest rates in the UK vary widely, typically ranging from 5.20% to 6.30% depending on the product, lender, and individual circumstances.
  • Compared to regular mortgage rates, they are generally higher due to the added risk to the lender and the lifetime term of the loan.
  • They can change over time, particularly with variable rate products, but most plans in the UK use a fixed rate for security.
  • The interest rates of your equity release plan determine how quickly the debt will grow over time, affecting the remaining equity in your property.
  • Factors influencing them include the Bank of England base rate, lender competition, market conditions, and the borrower's age and property value."

Your equity release interest rate is something important to consider because it can significantly impact the cost and overall value of the loan. 

Rates can vary depending on the provider, product, and borrower's individual circumstances. 

That is why it is essential to compare rates carefully, seek independent financial advice, and understand any equity release product's potential risks and benefits. 

In This Article, You Will Discover:

    In this article, the Every Investor team will explore interest in detail, including recent trends, factors affecting interest, how to compare interest rates, and the potential impact of interest rates on the overall cost and value of an equity release plan.

    The aim of this article is to provide a comprehensive guide to rates of interest to aid informed decision-making.

    At Every Investor, we are committed to maintaining the highest standards of accuracy and comprehensiveness. Our researchers have spent hundreds of hours analysing the latest equity release rates, and our editorial team reviews, fact-checks, and updates all our content to ensure it remains current, relevant, and undergoes extensive quality checks.

    Therefore:

    What Are Equity Release Loans?

    Homeowners over 55 can consider equity release as a method to access their property's equity without selling it.

    This financial arrangement can offer a single large payment, ongoing income, or a mix, using the house as the guarantee.

    An equity release loan in the UK is typically split into two categories: lifetime mortgages and home reversion plans.

    This approach can be a practical way to boost retirement funds, invest in home upgrades, or afford care services, offering a range of financial possibilities for older individuals.

    What Are the Equity Release Interest Rates in the UK for 2024?

    The interest rates for equity release in 2024 vary by lender but are generally competitive, reflecting market conditions and policies.

    What Are the Current Equity Release Interest Rates in the UK for 2024?

    As of this moment, interest rates are typically between 5.20% to 6.30% per annum.

    This, of course, depends on the type of equity release plan chosen and the lender's terms.

    Please remember, a lower interest rate is generally better, but it is crucial to consider the plan's overall cost.

    It is important to note that these rates are subject to change and vary across different providers.

    The equity release market is diverse, with rates fluctuating based on economic factors and competition among lenders.

    It is highly recommended to seek professional advice before making any decisions, as understanding the impact of interest rates on the cost of releasing equity can make a substantial difference to the final cost.

    We're here to guide you through this complex landscape.

    What Are the Average Equity Release Interest Rates in 2024 in UK?

    Average interest rates in 2024 currently range from 5.20% to 6.30% APR.*2

    Those at the higher end of the range are usually applied to lifetime mortgage plans with high LTVs (i.e., plans that allow you to borrow larger amounts).

    Consider:

    Figures can change over time and may vary depending on the lender, the product chosen, and the loan value selected.

    Also, note that lower options do not always mean a better deal, as other factors such as fees and loan terms should also be considered 

    Before considering any equity release product, it is essential to seek independent financial advice, from someone such as equity release mortgage brokers, and carefully consider the potential impact on your finances and your beneficiaries.

    *Accurate as at 04/06/2023. While we strive to keep our information accurate, these may have changed since our last update. 

    How Does Equity Release Interest Work and What Is Its Impact?

    Interest on equity release compounds over time, increasing the total amount owed unless payments are made to manage the balance.

    How Does Interest on Equity Release Work in the UK?

    In the UK, equity release interest accumulates on your lifetime mortgage loan balance using a compound interest method.

    This means you don't need to make any repayments until the property is sold, you move into care, or pass away.

    A key aspect to remember is how compound interest can cause the loan balance to grow substantially over time.

    For example

    Consider Mr. and Mrs. Kumar, aged 70, who take out a £100,000 equity release loan at a 5% interest rate. After 15 years, due to compound interest, they could owe around £211,370.

    Other types of equity release product?

    Alternatively, equity release can also involve home reversion plans, where a part of your home is sold in exchange for a lump sum or regular payments, free of interest charges. However, these plans result in the loss of full property ownership and require careful consideration and advice.

    Please be aware:

    Taking out an equity release loan could impact the size of your estate and potentially reduce your eligibility for means-tested benefits.

    How Does Compound Interest Affect Your Equity Release Plan?

    Compound interest significantly impacts the total amount owed over time.

    The interest is calculated not just on the initial loan amount but also on the accumulated interest from previous periods.

    This effect of interest compounding means the longer your equity release plan runs, the larger the final amount owed becomes.

    Understanding the implications of compound interest is essential in managing the financial impact of your equity release plan. It helps you anticipate the increasing debt over time and plan your estate effectively.

    Remember

    The compounding effect of interest makes early planning and consultation with financial advisors crucial for making informed decisions.

    Fixed vs. Variable Interest Rates Which Is Better?

    Fixed and variable rates are the two options borrowers get to choose from when selecting a plan. 

    A quick comparison:

    • Fixed Interest Rate: Your interest rate remains the same throughout the life of the loan, and you will know exactly how much you will owe at the end of the loan term. While this means your interest rate remains the same, providing certainty about your long-term financial commitment, you need to remember that if market figures decrease significantly, you will not be able to benefit from this reduction.
    • Variable Interest Rate: Your interest rate can change over time. This type of interest rate can be riskier for borrowers, as they may end up owing more than they anticipated.

    Note:

    The interest on an equity release product is not necessarily paid off during the lifetime of the borrower. 

    Instead, it is typically paid off when the property is sold, either when the borrower moves into long-term care or passes away.

    When considering an equity release product, borrowers should note the pros and cons of each and consider them carefully.

    APR vs. MER: Understanding the Differences

    APR and MER are both financial acronyms that represent different ways of calculating interest.

    The difference between the two:

    • APR (Annual Percentage Rate) represents the annual cost of a loan, including both the interest rate and any associated fees, calculated on an annual basis. This rate is especially useful for comparing different loan products. For example, if you are comparing two loans, the APR provides a standardised way of comparing the costs associated with each, rather than just comparing the interest rates.
    • MER (Monthly Equivalent Rate) is a term used to express the equivalent monthly interest rate of an APR. It is used to help borrowers understand what the APR would be on a monthly basis. It is especially useful in contexts where interest is compounded or calculated more frequently than annually.

    In short, APR gives you the overall yearly cost of the loan, including fees, while MER breaks that cost down to a monthly level, making it easier to understand the monthly interest implications of a loan. 

    Please consult with a financial advisor or use an online APR to MER calculator if you wish to know more about these representations.

    What about AER?

    AER stands for ‘Annual Equivalent Rate’ and is typically used for savings accounts. 

    It is the rate of interest that would be earned on the savings account if the interest was paid and compounded annually. 

    How Can You Secure the Best Equity Release Interest Rates in 2024?

    Comparing lenders, understanding market trends, and consulting with a financial advisor can help secure favorable interest rates.

    How Can I Obtain the Best Equity Release Interest Rates in 2024?

    The best interest rate you could obtain on equity release in Feb 2024 is 5.25% (MER)*. 

    That may sound like a straightforward answer, but it is not the full picture.

    Why Is that?

    The rate you are offered will be calculated based on your unique circumstances and the type of product you select.

    If you would like to obtain a better idea of what kind of interest rate to expect, you will need to know which factors influence the rate you may be offered.

    When it comes to mortgages, the best UK mortgage rates differ according to the length and type of mortgage.

    *While we regularly review our rates, these may have changed since our previous update.

    How Can You Find the Lowest Equity Release Interest Rates in the UK?

    To find the lowest equity release interest rates in the UK, start by comparing offers from multiple lenders.

    It is important to not only look at the interest rates but also consider other factors like fees, flexibility, and the lender's reputation.

    Consulting with a financial advisor who specialises in equity release can also provide you with insights into the best deals in the current market.

    How Can You Compare Equity Release Interest Rates Effectively?

    To compare rates, always look at the APR of the equity release product, not just the interest rate. 

    The APR includes both the interest rate and any associated fees or charges, giving you a more complete picture of the cost of the product.

    You may also want to consider the following:

    • Understanding the MER (Monthly Equivalent Rate) can be helpful, as it breaks down the annual interest rate into a monthly equivalent. This can be particularly helpful for understanding the implications of compound interest over the period of the equity release.
    • Some equity release plans have a fixed interest rate, which means the rate will not change over the life of the loan. Others have variable options, which could go up or down. Both options have their pros and cons, depending on your individual circumstances and risk tolerance.

    Remember, always seek independent financial advice from a qualified advisor who can help you compare products and understand the potential costs and risks involved.

    Strategies to Secure Lower Equity Release Interest Rates

    To reduce your equity release interest rate, you could employ a number of strategies. 

    What you can do:

    • Shop around: Research and compare products from different providers to find the best equity release offers & deals, rates and terms.
    • Negotiate with providers: Some equity release providers may be willing to negotiate or offer special promotions to new customers.
    • Choose a lower loan-to-value (LTV) ratio: Opting for a lower LTV ratio can reduce the risk to the lender, which may result in a lower interest rate being offered.

    Reducing equity release interest may not always be possible, so it is essential to carefully consider the overall costs and risks associated with any equity release product before making a decision. 

    Be aware of the risks:

    Equity release carries several potential risks you need to be aware of if you are considering taking out this type of loan. 

    These risks include:

    • Equity release may reduce the value of your estate, meaning there would be less to leave as inheritance. 
    • It can also affect your tax position and eligibility for means-tested benefits. 
    • The compounding of interest on an equity release scheme means the amount owed can grow quickly, and you could end up owing the full value of your home. 
    • There can be substantial fees for repaying the loan early. 

    It is essential to seek advice from a qualified equity release advisor before deciding on an equity release plan.

    Which Equity Release Interest Rate Calculator Is Best for Your Financial Planning?

    For your financial planning, a calculator that provides detailed breakdowns, including monthly and yearly interest accumulation, is ideal.

    Look for calculators that allow you to input different interest rates and term lengths to see how these variables affect the total amount owed.

    This will help you understand the long-term financial implications of your equity release plan.

    EI Average House Price Comparison

    How Do Equity Release Interest Rates Compare and Vary?

    Rates vary by lender, product type, and individual circumstances, with fixed and variable options influencing the overall cost.

    Current Equity Release Interest Rates Compared

    Compare equity release rates and see what options are available:

    ProviderScheme NameMonthly
    (Rate)The amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed.
    Pure RetirementAge Partnership Classic Flexible Lump Sum 25.25%
    Pure RetirementAge Partnership Classic Flexible Lump Sum 15.30%
    Pure RetirementAge Partnership Sovereign Flex Lump Sum (Fee) (AP) (Single)5.71%
    Pure RetirementAge Partnership Sovereign Flex Lump Sum (AP) (Single)5.78%
    Pure RetirementAge Partnership Sovereign Flex Lump Sum (1% Cashback) (AP) (Single)5.88%
    Pure RetirementAge Partnership Sovereign Flex Lump Sum (2% Cashback) (AP) (Single)5.98%
    AvivaAge Partnership Lifestyle Flexible Option, Fixed ERCN/A
    Pure RetirementAge Partnership Sovereign Flex Lump Sum (3% Cashback) (AP) (Single)6.08%
    Pure RetirementAge Partnership Sovereign Flex Lump Sum (4% Cashback) (AP) (Single)6.18%
    Just RetirementAge Partnership J1 Lump Sum Fixed ERC (Enhanced)6.30%

    Updated: 05/01/2024

    Scenario: 60 year old single male with a £300,000 property value, who wants to release £30,000.

    How Do Average Equity Release Interest Rates Vary by Age in the UK?

    The average can vary depending on several characteristics, including the homeowner's age, indirectly. 

    How does that work?

    The older the borrower, the more they are typically allowed to borrow through equity release.3 

    This could indirectly affect the interest rate, as bigger loans could be subject to higher figures to make up for the lender's increased risk.4

    What Influences Equity Release Mortgage Rates and Market Trends?

    Economic conditions, Bank of England policies, and lender competition are key factors that influence equity release rates and trends.

    What Factors Influence Equity Release Mortgage Rates in the UK?

    Factors include the plan type and loan size. 

    Key determinants include: 

    • The requested Loan-to-Value ratio, where a higher borrowing amount against available equity leads to increased interest.5
    • Your property value.6
    • Personal health and lifestyle, as certain conditions or habits could result in better terms.7
    • Demand and supply dynamics, and broader economic conditions like inflation and associated base rate fluctuations.8 
    • Age and marital status also play parts, as older borrowers and couples applying jointly may face higher amounts. This is because, generally, the older you are, the more you can borrow through equity release, and the more you borrow, the higher your rate.9
    • Lenders' business strategies, as they may at certain times, offer lower figures to attract more customers. 
    • Specific product features like Inheritance Protection. 
    • Projections of your home’s future value. 
    • While a poor credit history does not prevent qualifying for equity release, it may limit access to better deals. 

    Despite the appeal of lower rates, also consider other costs of releasing equity like setup fees, early repayment charges, and overall cost. 

    Always seek advice from a qualified broker or advisor before deciding.

    How Do Market Conditions Impact Equity Release Interest Rates in the UK?

    Market conditions significantly influence equity release interest rates in the UK.

    Factors like the Bank of England's base rate, inflation, and the overall economic climate play a role in determining these rates.

    In a stable or growing economy, rates may be higher, while in a struggling economy, rates might be lower to encourage borrowing.

    Therefore

    Keeping an eye on economic trends is vital when considering equity release.

    Latest Trends in Equity Release Interest Rates

    Recent trends and developments in equity interest include a gentle increase in the number of plans being taken out as figures slowly start to drop, according to the chair of the Equity Release Council.11

    How Is Interest Repaid on Equity Releases in the UK?

    Paying back interest on equity release plans is not mandatory (unless you have taken out a plan that specifically requires interest repayments, like an Interest-Only lifetime mortgage). 

    Instead, the interest is added to the loan amount and compounded over time, meaning the amount owed will increase substantially over the life of the loan.

    The total debt accumulated on a lifetime mortgage will be repaid when the property is sold once the borrower moves into long-term care or passes away.

    However:

    Starting in May 2022, all new lifetime mortgages approved by the Equity Release Council must include the option of making penalty-free payments.10

    Making interest payments could help reduce the amount owed over time significantly.

    Common Questions About Equity Release Interest Rates UK

    This section addresses widespread inquiries, providing clarity on how interest rates affect the cost and benefits of equity release schemes.

    What Are the Current Equity Release Interest Rates in the UK?

    How Do Equity Release Interest Rates Compare to Regular Mortgage Rates?

    Will Equity Release Interest Rates Change in 2024?

    What Is the Impact of Interest Rates on Your UK Equity Release Plan?

    What Determines Your Equity Release Interest Rate in the UK?

    Are Variable Interest Rates Currently Available for Equity Release?

    How Long Does It Take to Secure an Equity Release Plan With a Low Interest Rate?

    How Does Inflation Affect Equity Release Interest Rates?

    Are Equity Release Interest Rates Higher Than Traditional Mortgage Rates?

    Can Making Interest Payments on My Equity Release Plan Reduce the Amount Owed?

    How Often Are Equity Release Interest Rates Reviewed in the UK?

    How Do Equity Release Rates Compare Across Different UK Providers?

    How Do Figures Vary by Location Within the UK?

    How Can My Health Impact the Equity Release Interest Rate I Am Offered in the UK?

    Will Equity Release Interest Rates Fall?

    Which Companies Offer the Best Equity Release Interest Rates in the UK?

    What Are the Current Lifetime Mortgage Interest Rates in the UK?

    Concluding Insights on Equity Release Interest Rates

    Interest on equity release can significantly impact the cost and overall value of an equity release plan. 

    These can vary depending on factors such as the product’s features, the borrower’s state of health, and the amount borrowed. 

    Borrowers can compare rates by researching providers and products, considering fixed vs. variable (and capped) options, looking for flexibility, and seeking independent financial advice. 

    It is also important to understand the risks associated with equity release plans, such as negative equity and potential impact on inheritance. 

    By carefully reviewing the terms and conditions of any equity release product, seeking independent financial advice, and considering the impact of interest rates, borrowers can make informed decisions about equity release interest that align with their financial goals and needs.

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