Equity Release Interest Rates Rise in 2025: What to Expect
Equity release interest rates fluctuate based on market conditions, but trends and forecasts can be tracked through financial news sources and equity release advisers.
Are Equity Release Interest Rates Rising? Discover Why Equity Release Is STILL So Popular Despite the Increasing Interest Rates, What These Rates Are, and Why You Should Still Consider Releasing Equity in 2025. Read On...
This article contains tops tips from our experts, backed by in-depth research.
Katherine Read Is a Financial Writer Known for Her Work on Financial Planning and Retirement Finance, Covering Equity Release, Lifetime Mortgages, Home Reversion, Retirement Planning, SIPPs, Pension Drawdown, and Interest-Only Mortgages.
Bert Hofhuis Is a Founder & Entrepreneur Simplifying the Complexities of Later Life Planning. He Navigates the Intricacies of Equity Release, Lifetime Mortgages, Reverse Mortgages, and Wealth Management With Clarity and Expertise.
Paul Is an External Compliance Expert and the Director of Alpha Capital Compliance Limited, Known for Its No-Nonsense Approach to Financial Compliance. With Expertise in Regulatory Updates, Compliance Auditing, and Due Diligence, Paul Is a Trusted Name in UK Finance.
Francis Hui Is Senior Risk Manager With a Wealth of High-Level Experience Across the Industry, and a True Expert at Helping UK Citizens Make Smart Financial Decisions and Manage Risk.
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Key Takeaways...
The current interest rate on equity release in the UK varies, but as of 2021, it averages around 5.97% to 6.28%*.
Rates are calculated based on various factors, including the age of the youngest homeowner, the property value, and the amount of equity you are looking to access.
There are risks involved if rates rise, such as potentially reducing the amount you can pass on as inheritance.
Rising rates can affect your finances by increasing the total amount you owe, hence reducing the equity left in your home.
While rates for these plans are generally fixed, negotiating a lower rate may be possible depending on the provider's terms and conditions.
What does this mean for the future equity release, and how expensive will these products be?
Is there hope for rate decreases in the near future?
In This Article, You Will Discover:
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What Are the Current Equity Release Interest Rates?
The current equity release interest rates start at 5.68% and rise to 7% AER*.2 This is vastly more than the minimal 2.3% and average of 3.67% that we saw in March 2021.2
*We regularly review our rates, but these may have changed since our last update.
When Will Interest Rates Drop?
Equity release interest rates are only expected to drop in 2025.3
Equity release plans are more flexible than ever, saving you money. You can opt for a drawdown plan or find an option with free advice, a free valuation4, and no completion fees, saving potentially large amounts.
Whilst looking into equity release, one must also consider the possible drawbacks, including it's effect on the inheritance you plan to leave to your heirs, it's impact on your eligibility for means-tested benefits, early repayment fees, and more.
What Is the Current Interest Rate on Equity Release in the UK?
As of now, the average interest rate on equity release in the UK hovers around 4-6%; however, it is important to note that the exact rate could vary depending on several factors such as the lender, your age, the value of your property, and the type of equity release scheme you choose.
The interest on equity release is compounded or ‘rolled up’ over the years. This means that you are not just being charged interest on the initial loan, but also on the accrued interest from previous years, which could significantly increase the total amount owed.
How Are Equity Release Interest Rates Calculated?
The interest rates on equity release are typically calculated based on several factors such as the applicant’s age, health, and property value.
Moreover, some lenders offer enhanced plans for those with certain health conditions, which could possibly result in a lower interest rate.
It is also worth noting that interest is compounded, meaning that interest is added to the loan and future interest is accrued on this increased amount.
Are There Risks Involved If Equity Release Interest Rates Rise?
Yes, there are risks involved if equity release interest rates rise.
As equity release schemes typically have a fixed interest rate for life, an unexpected rise can increase the overall cost of the loan significantly.
While most plans in today’s market offer a ‘no negative equity guarantee’, meaning that you will never owe more than your home’s value, a high interest rate could still eat into your estate’s value, leaving less inheritance for your family.
How Can Rising Equity Release Interest Rates Affect My Finances?
Rising equity release interest rates can have a significant impact on your finances.
Higher rates mean that the amount of money you owe can increase at a faster pace, reducing the amount of equity left in your property.
Moreover, as the interest is compounded, a rise in rates can quickly increase the overall cost of the loan.
This could result in you leaving a smaller inheritance and may affect your eligibility for means-tested benefits.
Can I Negotiate the Interest Rates for My Equity Release?
Whilst it is not common, some equity release providers may be open to negotiation on interest rates; however, this typically depends on individual circumstances such as your age, health, and the value of your property.
It is important to seek advice from a qualified adviser before entering into an equity release scheme.
They can guide you on the different plans available and help you navigate the negotiation process if possible.
In Conclusion
As house prices increase along with the cost of living, more homeowners turn to their property wealth to access a more comfortable retirement.
Despite equity release interest rates rising as homeowners clamour for affordable products, the growth of these convenient products is likely evident again in the future.
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