Best Equity Release Interest Rates in 2022

Are You Looking to Find the Lowerst Interest Rate on Equity Release?
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Are You Looking for the Best Equity Release Interest Rates in the UK? Find Out What Factors Affect Interest Rates, How to Reduce Them & Where to Find the Best Rates.

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Stop and read this article on equity release interest rates before blindly walking into an equity release plan. 

Or, if you’ve already released equity, we may have some life-changing news.

While equity release is a fantastic product, interest rates can be financially draining.

But, we’ve got the secrets on how to obtain the best equity release rates, and we’re here to share. 

What You’ll Learn in This Article:

    SovereignBoss is invested in you, and our role is to find the best rates on the market, to help you have the cheapest possible equity release journey.

    We did a detailed analysis of all regulated equity release plans to find the key.

    Here’s what we’ve discovered.

    Let’s find out now!

    What’s the Interest Rate on Equity Release?

    The interest rates on equity release are fixed or occasionally capped, variable rates that currently start at between 4% and 7%.

    In the Spring 2022 Market Report1, the Equity Release Council stated that the average interest rate for equity release was 3.95%.

    Why Are Low Interest Rates on Equity Release So Important?

    Low interest rates on equity release are important because they will vastly reduce the overall cost of your loan, particularly if you allow the interest to compound.

    The more home equity you use for interest, the lower the inheritance you’ll leave to your heirs. 

    What Factors Affect the Equity Release Interest Rate?

    The factors that affect the equity release interest rate are age, product features, credit history, requested loan-to-value, marital status, and surveyor’s valuation2

    Here’s more information. 

    Age

    The older you are, the more equity you can unlock from your property. You’ll need to be 55 or older to qualify for such loans.

    Product Features

    The product features offered by your lender will impact equity release interest rates.

    You might be given a free valuation or no completion fee, but your interest rates are exaggerated. Therefore, your best bet is to review a potential plan holistically. 

    Credit History

    Your credit history could impact the loan you can access, but this is unlikely.

    Credit checks are unlikely to be requested because equity release is a secured loan3

    Requested Loan-to-Value

    The loan-to-value you request is certain to impact the amount of equity you can unlock.

    The rule of thumb is that the more you unlock, the less interest you’ll pay. 

    Marital Status

    If you’re married and want to unlock a joint plan, the youngest spouse’s age will be considered to determine your equity release interest rates. 

    Surveyor’s Valuation

    The surveyor’s valuation will determine your property’s value, which will impact the interest rates you’re charged.

    How’s Interest Computed on Equity Release?

    Interest is computed on equity release by the amount added monthly or annually on your loan amount and the interest that’s already charged. 

    This is known as compound interest and is essentially interest on interest. 

    Equity Release Interest Example

    An example of equity release interest rates is as follows:

    If you want to unlock 25% of your property value, at age 55 you’ll pay an interest rate of 3.53%, but at 75, you’ll pay 4.07%. 

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    What Is the Best Interest Rate on Equity Release?

    The best interest rate on equity release is currently between 4% and 7%.

    View the most current rates here.

    However, the best rates you can achieve will be determined by your age, the value of your property, and even the condition of your health.

    ProviderScheme NameMonthly
    A monthly interest rate is simply how much interest you would be charged in one month.
    AER
    The Annual Equivalent Rate (AER) is the actual interest rate an investment, loan, or savings account will yield after accounting for compounding.
    APR
    The Annual Percentage Rate (APR) includes not only the interest expense on the loan but also all fees and other costs involved in procuring the loan.
    Pure RetirementSovereign Flex Lump Sum (Fee) (AP)4.28%4.36%4.36%
    Pure RetirementSovereign Flex Lump Sum (Fee Free) (AP)4.35%4.44%4.44%
    AvivaLifestyle Flexible Option Fixed ERC4.65%4.50%5.00%
    Pure RetirementClassic Flexible Lump Sum 24.41%4.50%4.50%
    Pure RetirementClassic Flexible Lump Sum 14.46%4.55%4.55%
    Legal & GeneralFlexible Black Lifetime Mortgage Tier 1 Defined ERCs DTV (Fee)4.66%4.76%4.90%
    Legal & GeneralFlexible Black Lifetime Mortgage Tier 1 Defined ERCs DTV4.70%4.80%4.90%
    Legal & GeneralFlexible Pink Lifetime Mortgage Tier 1 Defined ERCs DTV (Fee)4.73%4.83%5.00%
    Pure RetirementSovereign Flex Lump Sum (4% Cashback) (AP)4.75%4.85%4.85%

    Last Updated: 20 July 2022

    Rates Table Based On:

    • Gender: Single Male
    • Age: 60
    • Property Value: £300 000
    • Release Amount: £30 000

    How to Get the Lowest Equity Release Interest Rates

    To get the lowest equity release interest rates, contact a whole-market financial advisor who can review the entire market for you, finding the lender that’ll provide the best offer.

    How to Reduce the Rate of Interest Paid on Equity Release Schemes

    You can reduce the rate of interest charged on equity release schemes by opting for a drawdown reserve, going for downsizing protection, choosing interest repayments, and making loan repayments.

    Here’s more information:

    Drawdown Reserve

    A drawdown reserve helps you reduce equity release interest rates because your money stays in the reserve facility, and you only pay interest on the money you withdraw. 

    Downsizing Protection

    Downsizing protection ensures that you won’t pay penalties if you move home and your new home doesn’t meet essential requirements. 

     Instead, your home is sold, and the loan and interest balance is covered from the sale.

    As per the Equity Release Council’s ‘no negative equity guarantee,’ any additional equity will be written off. 

    Interest Repayments

    You can repay the monthly interest on your equity release plan, stopping and starting whenever you wish. 

    The Equity Release Council implemented a new rule on 31 March 2022, stating that all new plans must come with the option of voluntary interest repayments. 

    Therefore, if you’re already a plan holder, you should chat to your financial advisor about potentially switching plans.

    Loan Repayments

    You can also make loan repayments on new equity release plans, as per the Council’s latest ruling. 

    While some lenders offered this in the past, you now have the guaranteed option of repaying 10% to 40% of your loan amount annually. The exact amount will be lender dependent. 

    Fixed vs. Variable Interest Ratest

    The difference between fixed and variable interest rates is that fixed rates are set when you unlock equity and stay the same throughout; variable rates will fluctuate according to financial market standards. 

    While fixed rates are vastly more common with equity release, variable equity release interest rates will come with a cap. 

    AER vs. MER – What’s the Difference?

    The difference between AER & MER is how the interest fee is calculated.

    • MER: Monthly Equivalent Rate – This type of interest rate is 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.

    Common Questions

    Will Equity Release Interest Rates Fall?

    Are Equity Release Interest Rates Fixed?

    Is Equity Release Compound Interest?

    Does Bad Credit Affect Your Interest Rates?

    Can You Get an Equity Release and Pay the Interest?

    What Interest Rate Am I Likely to Achieve?

    Can You Pay the Interest on Equity Release?

    Do You Have to Pay Interest on Equity Release?

    In Conclusion

    Equity release has never been more flexible now that you can pay back the monthly interest as and when you wish. 

    While rates have increased, they are still quite reasonable, and you can save a ton with small monthly payments.

    Remember to consult a whole market financial adviser as they’ll have the tools to find you the best equity release interest rates available on the market to suit your needs.

    Before You Go…

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