Equity Release Interest Rates in Oct 2021

How Expensive Are 2021 Equity Release Interest Rates?

Are You Looking to Find the Lowest Interest Rate on Equity Release? Discover the Factors That Impact Interest Rates & What You Can Expect From the Process. Learn About the Average Fees & More..

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Best Interest Rates on Equity Release in the UK

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Are you considering joining the over 10,000 Brits who’ve released equity in 2021?

If you are not up to date with the latest equity release interest rate news, you could end up being locked into a plan with unnecessarily high rates!

The question is, why are low rates so important?

As experts in the equity release sector, we’ve reviewed more than 220 equity release schemes by Oct 2021 and will help you discover:

  • The lowest equity release interest rates currently on the market, and how these compare to rates of previous years.
  • Whether or not you’re paying more than necessary with your current equity release plan.
  • Why low interest rates are so important for you and your family.
  • What factors will affect the rates you get for your new plan.

The great news is that equity release interest rates hit an unprecedented all-time low in Oct 2021. But if you’re not careful, you could be sold a plan at higher rates, meaning that a greater portion of your home will go to your lender when you die.

Imagine how much money you could be saving right now? Let’s find out!

What Is Equity Release?

Before you continue reading, check this out! We’ve summed up the most important information about equity release in this quick video:

What Are The Equity Release Interest Rates?

In 2019, £3.4bn in cash was unlocked through equity release. However, all those people are likely paying too much compound interest on their plans. In fact, this is the case for anyone who released equity before 2020.

These days, more than 50% of competitors in the equity release field are offering rates below 4%, with some offering rates as low as 3%. This means that releasing equity from your home is becoming a much more lucrative retirement option for people over 55. 2021 is seeing an even further rate reduction, with rates as low as 2.3%! This is a significant reduction to rates 5 years ago, when they sat above the 6% mark.

Why are low equity release interest rates so important?

With lifetime mortgages (the most popular type of equity release), low rates mean there will be less compound interest, thus increasing the value of your estate once you have passed away or moved into permanent care.

When looking at equity release products in 2021, you should look for interest rates below 4%, as these are considered excellent.

Check out these current interest rates as proof that equity release interest rates are lower than ever:

Current Interest Rates Table

Lender Monthly Equivalent Rate (MER)Annual Equivalent Rate (AER)
Pure Retirement 2.76% 2.80%
More 2 Life 2.76% 2.80%
Aviva 2.82% 2.90%
Newbury Building Society 2.95% 3.70%
Legal & General 2.97% 3.10%
Hodge 3.00% 3.90%
Scottish Widows 3.03% 3.10%
Bath Building Society 3.05% 3.20%
Just 3.34% 3.30%
Canada Life 3.44% 3.57%

Learn More: Compare the Best Equity Release Mortgage Schemes & Deals

What Interest Rates Am I Likely to Achieve in Oct 2021?

If you want to know more about the interest rates you are likely to achieve, we have created 3 case studies of different examples to give you a clearer idea. You can also use our equity release calculator for over 55s to see how much cash you can unlock.

Couple Aged 71 and 77

Case Study 1: Couple Aged 71 and 77

  • Property Value: £550 000
  • Property Type: House

The Recommended Plan

  • Lender Aviva
  • Release Approximately £203 500
  • Interest Rates: Roughly 3.50% MER (3.56% AER)
  • Lender Fees: £0 upfront & £5 on completion
Single Retiree Aged 62

Case Study 2: Single Retiree Aged 62

  • Property Value: £650 000
  • Client Information: The client lives in a house and has severe health concerns

The Recommended Plan

  • Lender: more2life
  • Release Approximately: £331 500
  • Interest Rates: Roughly 3.12% MER (3.16% AER)
  • Lender Fees: £0 upfront & £0 on completion
Couple aged 76 and 82

Case Study 3: Couple Aged 76 and 82

Property Value: £250 000.00
Client Information:
The client lives in a flat and is of average health.

The Recommended Plan

  • Lender: Just
  • Release: £123 750 + £6 188 cashback
  • Interest Rates: 5.60% MER (5.75% AER)
  • Lender Fees: £0 upfront & £0 completion

Best Equity Release Rates in Oct 2021

Are you wondering what the best rates are RIGHT NOW, in Oct 2021?

Let’s look at some of the top Equity Release Council members and what their lowest rates are:

  • Pure Retirement 2.32%
  • Legal & General 2.3%
  • More 2 Life 2.9%
  • Aviva 3.3%

In addition to low rates, it’s important to look at the key features that these providers offer. For example, Pure Retirement offers a 10% per annum partial repayment option, L&G gives you a free valuation, More 2 Life has an amazing downsizing repayment charge exemption, and Aviva doesn’t have early repayment charges for the first 3 years of your plan.

In addition to low rates, these features can help to significantly lower your initial setup expenses.

5 Important Aspects That Affect Interest Rates

Interest rates will differ from one individual to another. As a result, you must speak to an equity release adviser who will help you get the best equity release rates available in Oct 2021.

Check out these 5 aspects that will affect your interest rates!

Requested Loan to Value

Requested Loan to Value

The amount you choose to borrow has a massive impact on the interest rate percentage of your property. Generally speaking, the closer to the maximum available to you that you release, the higher the interest rate will be.

Product Features

Product Features

It’s essential to check out the different product underwriting and features of the various plans. Equity release plans with extra features, such as a reserve facility or inheritance protection, will come at a higher cost and an increased interest rate.

Lending criteria might also impact the market available to you. In other words, you will need to find a lender who approves your property, and this one may have higher interest rates.

It is important to note that specific lenders charge additional fees such as completion fees, which will affect your interest rate. Ask your financial adviser to find a plan that combines the best interest rates and lowest fees to suit your requirements, so that you pay as little as possible.

Your Age

Your Age

While your age doesn’t directly affect the best equity release rates available for you, it is essential to note that it does impact the maximum amount you are permitted to borrow.

The general rule is that the interest rate will increase when you borrow closer to the total amount available. If less is available, you might need to take it all, hence the increase in interest rate.

Your Marital Status

Your Marital Status

It is interesting to learn that specific lenders will not release equity to you as an individual if you are part of a couple. You might have to take out a joint equity release.

In such cases, equity release providers will consider the age of the youngest applicant when working out the amount you can borrow and the rates available to you.

Check out your options, as in some cases, you can get a lower interest rate or more cash released by applying in one name.

Learn More: Equity Release Rules All Homeowners Should Know

Your Credit History

Your Credit History

In addition, it’s vital to note that your credit history is considered when releasing equity from your home. This can impact the plans available to you and subsequent interest rates.

The great news is that if a County Court Judgment (CCJ) has previously been issued against you, or you have been declared insolvent in the past, you can still qualify for an equity release scheme. In addition, some lenders offer you the opportunity to use the Equity Release to repay your debts.

On the downside, should you have a bad credit rating, some of the plans with the best interest rates in the market might not be available for you.

How Else Can You Reduce the Cost of Equity Release?

There are other product features to look out for, that will aid in reducing the overall costs of equity release. These include:

  • Downsizing protection This feature allows you to move to a smaller home at any time, without incurring early repayment charges.
  • Interest repayments If you have the means to do so, you should consider opting for an interest-only or voluntary repayment plan. Both allow you to pay off all or some of the interest, therefore preventing it from compounding.
  • Loan repayments In addition, with a voluntary repayment plan, you do have the option of making partial loan repayments.  
  • Drawdown reserve With this option, you’ll only pay interest on the cash you’ve actually unlocked. The rest is kept in a reserve for you, that you can use when you wish.

However, in addition to cutting costs this way, you should still shop around for the best equity release rates available.

How Low Equity Release Interest Rates Can Affect Your Payments

You probably know that with a traditional mortgage, you’ll be liable for monthly payments. However, things are different with a lifetime mortgage, the most popular form of equity release. You won’t be obligated to make a single payment in your lifetime.

The loan, plus accumulated interest, is only due for payment when the last homeowner passes away or moved into a permanent care facility.

If you decide to not make repayments, the interest will compound, drastically reducing the value of your estate. While there’s a chance that equity release can use up the entire value of your estate, a ‘no negative equity guarantee’ ensures that you’ll never have to pay more than the total value.

Overall, if you have low interest rates, your interest will roll up at a much slower rate.

Is Equity Release a Competitive Means of Borrowing?

As years go by, equity release has grown in popularity. In Oct 2021, equity release has become a mainstream financial solution, and a strong competitor as part of the retirement planning process.

Equity release is great when comparing it to other forms of borrowing. However, it’s essential to consider an equity release alternative if you’re not happy to use the cash tied into your estate.

How Much Does Equity Release Cost?

The most important factor to consider with the costs of equity release is the interest. This will make the most significant dent. You can expect to pay under 4% for the best equity release rates.

However, there are other costs to consider. These include advice fees, litigation fees, a valuation, and application fees. Beyond the compound interest, the equity release process can set you back up to £3000.

AER vs MER – What’s the Difference?

Interest rates are quoted in 2 ways:

MER: Monthly Equivalent Rate

These rates are added over a year but divided monthly. The MER generally works out to be lower than the AER.

AER: Annual Equivalent Rate

AER, on the other hand, refers to interest rates that are added over one year.

Here’s why!

With lifetime mortgages, you are generally not obligated to make monthly payments. Instead, your loan balance will just be increased monthly, paid off when you pass away or move into permanent care.

Fixed vs Variable Interest Rates

Most equity release plans in 2021 come with a fixed interest rate. Simply put, it means that you will know exactly how much interest you will pay for the plan’s lifetime.

Variable rates for lifetime mortgages, on the other hand, are very similar to residential mortgages. They are typically linked to the Consumer Price Index (CPI) for lifetime mortgage plans.

It is wise to select an equity release plan with fixed rates as they are usually lower and offer complete certainty.

Learn More: Understanding Equity Release: Variable vs Fixed Interest Rates

Great news!

Lifetime mortgage interest rates are at an all-time low in 2021.

customers who wanted to get more money 1

How Interest Rates Have Changed Over Time

There are many competitive deals on the equity release market, with current interest rates at all-time low. Choosing the best deal can be a stressful process for retirees. Therefore, it’s wise to consult a financial adviser who can help you find the best equity release rates and plan for you. They have insight into a network of lenders and work to monitor the fluctuating interest rates and changes in plan policies, giving you expert advice that you can trust.

In the past few years, plans with higher interest rates have generally stayed comparable, but lower ones have dropped significantly in 2021. Rates have decreased overall.

There is talk that 2021 might be the time to release equity as such low rates are unlikely to be around for long, and could start to increase soon.

Do you already have an equity release plan? Perhaps speak to your financial adviser to see if you can switch to a plan with a lower interest rate!

Interesting Read: Will Mortgage Interest Rates Stay The Same In 2021?

Got Questions About Interest Rates? Check These Out First

What Interest Rates Can I Expect to Pay On My Equity Release Plan in 2021?

What's The Typical Interest Rate On Equity Release?

How’s Interest Computed on Equity Release?

Does Bad Credit Affect Your Equity Release Interest Rates?

In Conclusion

2021 is probably the BEST time to choose an equity release plan! With interest rates being at an all-time low, you’ll benefit from property growth and have the opportunity to release equity, meaning that you can retire comfortably.

When releasing equity, it’s tempting to focus on the immediate boost you will get from the money you unlock, but you need to look at how it will affect your future choices and financial situation in later life. You can get a better idea of a realistic quote with our equity release calculator.

Before you embark on the journey to taking out equity from your home, you must seek professional independent advice. A financial adviser will talk you through the specifics – including how much equity release will cost you – so you can decide whether it’s the right option for you.

Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

Contributors: Nicola Date, Katherine Read
Edited by Rachel Wait
Reviewed by Francis Hui

Equity Release Interest Rates

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Use our free equity release calculator & see how much you can release today.

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Written by
Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
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Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.
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Francis Hui
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Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
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Written by
Katherine Read
Financial Planning Reporter

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.
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Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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