Equity Release Costs in 2022

Do You Want to Know the 4 Major Costs of Equity Release?
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
What Are the Costs of Equity Release? Understand the Tax Implications & Early Redemption Charges. Read This So You Don’t Get Caught.

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Be careful with the equity release costs or you might end up wasting money!

Here’s the thing, it can be an expensive process, but it doesn’t necessarily need to be.

With the right advice, you can save buckets of hard-earned cash while joining the over 10,000 UK retirees who’ve unlocked the key to their retirement dreams in 2021.

Knowledge is power, so we’ll help you learn:

  • What are the equity release charges in Aug 2022.
  • The secret of how to pay for equity release.
  • Where these charges come from.
  • Weighing up cost to value when it comes to equity release.

They say that it takes 10,000 hours to master a skill. Well, we’ve certainly done the work.

Our expert team has analysed over 220 plans by every regulated plan provider in preparation to give you the best advice on the market. And it’s FREE!

We’ve compared the expenses involved with a range of advisers, plan providers and solicitors, to weigh up the average and determine what fair equity release expenditure should be.

We’ve researched for you, so all you need to do is read.

Let’s find out now!


What’s an Equity Release Mortgage?

Equity release is the umbrella term used for mortgages that are designed for older homeowners.

If you’re aged 55 or older, and you own your home in the UK, you could qualify to unlock the cash tied into your home.

Before you continue reading, we’ve summed up essential equity release information in this quick video.

Check it out!

What Are the Main Types of Equity Release?

There are 2 commonly used types of equity release, a lifetime mortgage, and a home reversion scheme.

In both cases, payments are only expected when the last homeowner passes away or moves into permanent care.

  • Lifetime mortgage – you’ll retain 100% ownership of your estate. You’ll unlock cash in a lump sum, regular payments, or a combination of both. The loan, plus your incrued interest, is then paid back using proceeds from the sale of your property, unless you want to repay it in your lifetime.
  • Home reversion scheme – you’ll sell all or some of your estate in exchange for equity. The lender will then collect their portion when the home is sold after you’ve died or moved to a care facility.

Your financial adviser will talk you through the equity release types to help you determine the best options for your future.

What Fees Will You Pay?

The fees you will pay for equity release will generally include the cost of a surveyor’s valuation, solicitor fees, advice fees, and lender application fees.

Some lenders may offer some of these services free of charge.

What Are the Equity Release Set-up Costs?

The initial equity release set-up costs will include paying for advice and your application fees.

Some advisers charge 1.5% – 2% of the equity released, while others may have a flat fee of £900 to £2000.

Application or arrangement fees, cover the equity release provider’s legal expenditures and administration charges.

Note that the costs involved with equity release can be covered from the funds unlocked from your home, and there are ways of minimising your costs.

What Additional Costs Are There With Equity Release?

The additional costs of equity release are the surveyor’s bill, the individual responsible for determining the value of your estate, and solicitor’s fees, your legal representative in the equity release process.

Here’s further information:

  • Surveyor’s Valuation Bill – Your plan provider needs an independent evaluation and property valuation to give your provider a current market value for your estate so that they can assess how much you can borrow.
  • Solicitor’s Fees – In addition to financial advice, you will also require independent legal advice from a solicitor, as per a ruling by the Equity Release Council. Both the lender and the individual taking out a plan need a solicitor to avoid any legal disagreements.

PRO TIP: Don’t get caught in a position where you can take higher equity loan interest rates for a free valuation. You might be sorry later.

What Interest Rate Will I Pay on Equity Release?

The interest rates you will pay on equity release will differ according to the type of plan you select, your plan provider, your age, your health condition, and the amount of equity you release from your home.

The lowest Equity Release interest rate is currently 2.97% (AER) fixed for life and the highest is 6.80% (AER). The average rate is currently 3.95%.

Your financial adviser will talk you through the equity Release Interest Rates Available in Aug 2022.

Does the Loan-to-Value Affect Equity Release Interest Rates?

Yes, the interest rates you receive with equity release are linked to the loan-to-value ratio.

To get the best interest rate, you must be borrowing less than the maximum amount available to you.

Alternatively, if you take out maximum equity, your interest rate could be quite high in comparison.

What Happens to the Interest Charged on Lifetime Mortgages?

When do you repay equity release interest? You can choose to either let the interest compound and have it paid off when you die or go to long-term care.

Alternatively, you can select to repay the interest monthly, reducing the total amount owed at the end of the loan.

What Percentage Loan-to-Value Can I Borrow Through a Lifetime Mortgage? 

The maximum amount you can unlock with a lifetime mortgage is usually up to 60% of the value tied into your home.

The amount is determined by the age of the youngest borrower when your application is submitted.

The more you age, the more equity you may borrow.

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Do I Need to Pay Tax on Equity Release?

No, you don’t need to pay tax on equity release. Equity release is seen as a loan rather than a form of income. As a result, you receive tax-free cash.

However, there might be tax implications based on how you spend the equity.

For example, Inheritance Tax might be applicable if you gift family members with the money.

Is Equity Release a Competitive Means of Borrowing?

Yes, equity release is a competitive means of borrowing.

There’s a ton of product flexibility, the industry is fully regulated, and your financial adviser should make the entire process pretty stress-free.

What Is the Total Cost of Equity Release?

While the total costs of the equity release process are somewhere between £1500 to £3000, plus the compound interest that will be owed.

These costs might vary depending on your selected lender and representation.

When Do I Pay Equity Release Fees?

You can pay all the costs involved with equity release when you receive the tax-free cash you unlock.

Therefore, it’s essential to factor these fees in when you consider how much equity you’d like to release from your home.

Take note: Some lenders may require you to pay the surveyor’s fee upfront but you can ask your financial adviser for more details on the matter.

How Can I Reduce the Cost of Equity Release?

You can reduce the costs of equity release by finding a plan with downsizing protection & by repaying the monthly interest so it doesn’t accumulate.

You can repay up to 40% (lender dependent) of your plan annually, and opting for a drawdown reserve so you only pay interest on the cash you use.

What’s the No Negative Equity Guarantee All About?

The ‘no negative equity guarantee‘ refers to a feature of all regulated plans and is designed to ensure that you won’t owe any more than your property’s value when it’s sold.

The lender will write off any amount still owing on the loan, and neither you nor your beneficiaries will be responsible for any balances.

What Are Early Redemption Charges (ERCs) For Equity Release & Lifetime Mortgages?

Early repayments charges (ERCs) for equity release and lifetime mortgages are fees charged by the lender if you pay off your mortgage earlier than when it is due to end.

If you sell the property or repay the loan before you die or enter into long-term care, you’ll be charged fixed-term or gilt-based rates.

Here’s further information:

  • Fixed-Term – The amount that you would owe will reduce over time. This could be an additional 5% over the first 1 to 5 years, and 3% over the next 6 to 8 years. After a certain period, early repayment charges may not apply.
  • Gilt-Based – These are based on the current gilt rate, which are British government bonds. These rates can be unpredictable and difficult to know in advance.

Since November 2019, all lenders have to give 3 years of protection from ERCs to joint borrowers.

Is It Worth Paying a Product Fee to Secure a Good Rate?

It’s worth paying a project fee to secure a good rate if you’re borrowing a large amount of equity.

However, if you borrow a smaller amount, a higher interest rate might be favourable instead of a product fee.

Your financial adviser will be able to assist you in determining the best course of action.

How Have Equity Release Costs Shifted over the Years?

Equity release interest rates were the lowest ever in March 2021, but have since risen. Rates start at 3.10% and are as high as 6.80%.

On the plus side, the competitive nature of the industries means that lenders are lowering and wavering many of their fees.

These days, it’s quite common to find a plan with a free valuation and no completion fee.

Common Questions

In Conclusion

Overall, it’s essential that before you embark on the journey to taking out equity on your house, you get independent advice.

A financial adviser will talk you through the specifics – including the equity release costs – so you can figure out whether it’s the right option for you.

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