How much does it cost to release equity?
*Updated January 2024*
How much equity release costs will depend on which type of plan you choose, a lifetime mortgage or a home reversion plan.
- Lifetime mortgage - The cost of an equity release lifetime mortgage will include the lender's initial set up and arrangement fees, fees for financial and legal advice and having your home valued. You will also need to allow for the cost of compound interest being added to the outstanding loan amount.
- Home reversion plan - The cost of releasing equity with a home reversion plan will includes fees for professional help and advice, an arrangement fee, the cost of having your home valued and your legal fees. There is no interest to pay as you have sold all or part of your home, rather than taking out a loan.
In this guide we explain the costs involved in arranging both types of equity release. If you need further information about the costs associated with equity release, please do get in touch.
How much does equity release cost with a lifetime mortgage?
In this section we will cover:
1. The cost of independent financial advice – payable when your equity release plan is set up
2. The cost for arranging a lifetime mortgage - payable upfront or added to the loan
3. The cost of having your home valued – payable upfront if charged
4. The cost for independent legal advice – payable upfront
Using a lifetime mortgage to release equity from your home involves paying for several professional services, so it's important to budget for these. According to the Equity Release Council, the average cost of arranging a lifetime mortgage is between £2,000 and £3,000, made up of the following fees and charges:
1. The cost of independent financial advice – payable when your equity release plan is set up
It’s important to get independent financial advice from a professional, reputable equity release specialist. Your adviser will help you decide if equity release is the right path for you and ideally research the whole market to find you the best deal from the most suitable lender.
Age Partnership is a market-leading equity release specialist able to compare leading UK equity release providers on your behalf, which is one of the reasons why we've chosen to partner with them.
Age Partnership has also negotiated preferential rates with many lenders, some of which are exclusive to them and do all they can to negotiate reduced set-up costs and sometimes even cash back on completion.
Most equity release advisers offer the initial consultation free of charge. If you go on to apply based on their advice, you pay a fee at that point. Age Partnership typically charges 1.95% of the cash sum you release or a minimum fee of £1,395, which is payable once your equity release mortgage has been set up.
Proceed with caution if you’re asked to pay for advice upfront.
2. The cost for arranging a lifetime mortgage - payable upfront or added to the loan
Arrangement fees cover the set-up of your mortgage and will vary depending on your lender. It could be a set amount of between £500 and £1,000, or a percentage of the loan value. These fees are payable once your lifetime mortgage is in place either as a one-off payment or by adding it to the sum you're borrowing – if you choose the latter you'll pay interest on it.
3. The cost of having your home valued – payable upfront if charged
If you took out a mortgage when you originally bought your home, you would have had a survey conducted to satisfy your lender of the property’s market value; the same applies to an equity release mortgage.
Your lender will usually arrange the valuation for you, often free of charge. Some lenders do charge but might also offer extra benefits, that balance out this cost.
4. The cost for independent legal advice – payable upfront
Releasing equity from your home using a lifetime mortgage is a big decision, and it's important to get the right advice at key points along the way.
If you decide to apply for equity release, the Equity Release Council’s rules require you to consult with an independent solicitor with no connection to your mortgage lender. You must also have at least one meeting with this solicitor before you proceed.
This is a valuable step in the process; designed to ensure you understand exactly what you are committing to, and that you're making your decision for the right reasons without any undue influence from your adviser.
With any plan offered by Equity Release Council member you're required to meet with an independent solicitor to ensure you understand the risks involved and the commitment you are making. It's mandatory for all plans to have at least one face to face meeting in person with a solicitor.
Equity release solicitor's fees
Solicitor’s fees for equity release vary depending on the firm and what services are included. As a rule of thumb, allow between £750 and £1000 including VAT for legal advice, money laundering checks, obtaining copies of land registry paperwork and bank transfer charges.
If any additional legal services are required, these will be an additional cost. For example, issues with the freehold or changes to title deeds such as a CCJ (County Court Judgement) or a name change.
All new equity release customers are required to have at least one face to face meeting with an Equity Release Council compliant solicitor. A list of solicitors can be found at https://www.equityreleasecouncil.com/find-a-member/solicitors/
Try our equity release calculator
What is compound interest on equity release?
Compound interest on equity release is interest paid on top of the interest already accrued on the loan amount. Also known as rolled up interest, compound interest is charged on either a monthly or annual basis, depending on the lifetime mortgage you choose.
For example, if interest is added annually, the interest accrued at the end of the first year is added to the loan. The following year, you will pay interest on the loan amount plus the interest already added. This ultimately means that at the end of each year, the size of the loan will increased.
Here is a simple example of how compound interest works:
| Year
|
Loan
|
6% Interest Rate
|
Total owed
|
| 1
|
£50,000
|
£3,000
|
£53,000
|
| 2
|
£53,000
|
£3,180
|
£56,180
|
| 3
|
£56,180
|
£3,370
|
£59,550
|
| 4
|
£59,550
|
£3,573
|
£63,123
|
| 5
|
£63,123
|
£3,787
|
£66,910
|
| This is the Equity Release Council’s example of how the annual payments on a £50,000 loan with an interest rate of 6% could work
|
More information on the topics raised in this article
How much does equity release cost with a home reversion plan?
A home reversion plan works by selling some or all of your home to an equity release provider for significantly less than the current value of your property. As a result, the cost of a home reversion plan includes this loss in property value as well as set up fee. You will also no longer benefit from any house price rises in the future on the percentage of your property that you've sold.
Fees for arranging a home reversion plan will consist of the following:
- Fees for professional help and advice when setting up your plan.
- An arrangement fee to the equity release provider.
- A valuation charge: the agreed value of your home will depend on the official valuation, so make sure you arrange an independent service and don't accept the first price suggested by the equity release company.
- Legal fees: get independent advice and have the terms of the agreement thoroughly checked by your own solicitor – not one proposed by the equity release provider. Your solicitor will help you understand all the details of your plan and ensure you are happy with the arrangements.
Once you've set up your home reversion plan, you'll be responsible for keeping your house in a reasonable condition. However, as you no longer own your home outright, you can't make any major home improvements.
There's no interest to pay on a home reversion plan You can continue to live in your home rent-free for life or until you move into long term care.
What is the interest rate on equity release?
Equity release interest rates can be fixed or variable with a cap. You only pay interest on the equity you've released, not the money held in reserve. So, if you don’t need the cash in one go, a drawdown mortgage could save you money as you only pay interest on the funds you've drawn.
An equity release lifetime mortgage is still more expensive than a standard mortgage. However, it’s worth keeping in mind that while the cost of your equity release loan increases, the value of your home will hopefully increase too.
Get the latest equity release interest rates available now.
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