Equity Release Costs

Equity Release Costs

This page was last updated on 1 October 2021

Equity Release Costs In 2021

This article focuses on equity release costs and related topics.

What is equity release?

Equity release is a financial product that allows homeowners aged over 55 to borrow money from their home and receive tax-free cash.

Equity release is a way of borrowing against the capital in your home without having to move out. These schemes are also known as lifetime mortgages or home reversion plans. The various types of equity release schemes allow you to take an income from your home, but will still stay in the property when you die.

You can use an equity release calculator to see how much money you could borrow.

Topics that you will find covered on this page

You can listen to an audio recording of this page below.

 

How does equity release work?

Typically you can borrow up to 50% of the current market value of your home and release it as a tax-free lump sum or regular income. You repay the loan when you die, sell your home or downsize.

You only pay interest on the amount of money borrowed and interest is added to the loan each month. This means that once the initial capital has been repaid, no further costs are incurred until you die, move house or give up ownership of your property (depending on which type of equity release product you choose).

There are several types of equity release schemes:

How much does equity release cost?

The costs of equity release are based on the interest rate on what you borrow and fees charged by the company.

You can find equity release providers in the UK offering a range of products and prices, but they all work within these similar principles. There are two main types of costs to be aware of:

Up-front fees – You must pay one or more up-front fees before you receive any money from your home. These may include arrangement fees, legal fees and survey fees, which will vary depending on the provider and product chosen.

Lifetime mortgage costs – A monthly fee is also payable with a lifetime mortgage. This changes with each provider so it’s important to shop around for an affordable rate.

You can find a link to this video on Youtube here.

Different types of costs involved with equity release

The different types of equity release costs you are looking for include:

Up-front fees

These are one-off, non refundable costs that you must pay before you can receive your money. They may include arrangement fees, legal fees and survey fees. An equity release scheme is a notoriously complicated product that is not suitable for everyone.

The cost of the equity release provider’s service should never be more than 2% of the loan amount plus any upfront costs (e.g. £2,000 on a £100,000 home). You should also check to see what proportion of this fee is paid to the financial advisor who recommends the product to you.

Legal Fees

These could be charged by lenders or independent financial advisers.

Administration Fees

These fees may include an application fee, a valuation fee and a discharge fee.

Survey Fees

This is the cost of having a survey carried out on your property.

Arrangement Fee

There are lots of different types of arrangement fees that you might be charged when taking out an equity release scheme. The average for this type of product is £5,000 but it can vary from provider to provider so always check before making any decisions.

Surveyor’s valuation fee for equity release

This is an independent valuation of your home, to ensure the correct equity release plan is recommended to you. This is usually around £125 – £300.

When considering whether to go ahead with an equity release mortgage it’s important that you receive an accurate valuation of your home. A fee for this will be payable, which can vary depending on the provider. If you are using an approved intermediary they should offer their own in-house valuers who may not charge you any additional fees for this service.

Try our free equity release calculator and see how much you could borrow in 30 seconds

What is equity release?

Lender’s Valuation Fee

At the start of the loan period, this is likely to be around £250 – £500 but may vary between providers. At any time during your equity release plan you might have to pay another fee – if your lender carries out another valuation on your property, this could cost

Discharge Fee

These fees are payable when you repay your loan or move out of your home. They range from £500 to £3,000 but it depends on the provider. If you die before repaying all of the money, the remaining debt will still have to be repaid so factor in any discharge costs when deciding how much money to take from your home.

For peace of mind, it is worth remembering that all equity release lenders will be regulated by the Financial Conduct Authority and the Equity Release Council.

"These are one-off, non refundable costs that you must pay before you can receive your money. They may include arrangement fees, legal fees and survey fees. An equity release scheme is a notoriously complicated product that is not suitable for everyone"

Solicitors’ fees for equity release

The majority of equity release plans are drawn up with the help of a solicitor, so there are likely to be legal costs. However, typically the legal fee is between £500 and £3,000.

Fees for this service can vary greatly depending on how complicated your situation is, which firm you use and where you live (the fees charged by London solicitors tend to be higher than elsewhere in the UK). It’s important that you shop around for an affordable price

Your solicitor should be able to provide you with a good indication of what you can expect to pay in legal costs throughout your equity release arrangement, but always make sure you get everything explained fully before signing any documents at this stage.

There are some equity release products that don’t require legal assistance. However, even if you do use a solicitor for equity release they will likely charge less than if you were taking out any other type of loan

As long as the solicitor charges reasonable fees and does not inflate them because you’ve opted to take out an equity release plan, both types of products should provide similar levels of protection for your family.

How does equity release work?

Providers’ ongoing fees

These might be called ongoing administration fees or ongoing valuation fees. These ongoing charges will usually change with each provider but they could cost anything from £75 – £200 per year. 

This covers the lender’s fee for carrying out another valuation of your property during the loan period, preparing your statement at the end of the plan and sending it to you, plus ongoing legal fees or disbursements.

The ongoing administration fee for equity release

This is the ongoing cost of administering your loan – it might also include surveyors’ valuation fees if required during the life of the loan. This fee will change depending on which provider you use – some charge nothing at all while others have an annual fee that’s added to your mortgage repayments.

Also, when thinking of providers it is worth remembering that if you do also have a potential early repayment charge if you end your mortgage early.

Equity release advice

You will often be able to get equity release advice at no cost, as the fee is actually paid by the provider with who you take out the equity release mortgage. Therefore, you are not likely to have an explicit advice fee.

The key thing is to speak to a specialist equity release advisor and not just getting standard financial advice from a financial adviser.

If however, you do find an adviser that wants to charge a fee, then try and do this on a fixed fee basis.

Do I pay tax on equity release?

Many homeowners are concerned that they’ll end up paying Capital Gains Tax (CGT) when they release the value in their homes. This won’t happen if you’re using your home to fund your retirement

When considering whether or not tax will be payable, it is important to bear in mind that in most cases equity release plans aren’t actually classed as a loan. Instead, they are considered to be an ‘asset withdrawal’ so there shouldn’t be any CGT payable. However, this depends on the circumstances of each individual, so always check with an independent financial adviser before making any decisions

Tax may become payable if you sell the property within 36 months of taking out the plan – although funds can usually also be released from the sale of the property

It’s also important to know that if you do die with an outstanding amount of money left, then you are likely to pay inheritance tax on it. This is currently set at 40% for amounts over £325,000.

For most people, equity release products are considered personal finance and therefore aren’t subject to CGT or inheritance tax. However, this depends on your individual circumstances, so always make sure you get impartial advice before committing yourself.

Can you pay the interest on equity release?

Different types of equity release

There are several different types of equity release, each of which has its own unique features and benefits, so there’s bound to be one that suits your financial situation.

Here we look at the main three types: lifetime mortgages, lifetime home reversions plans and lifetime mortgages with capped drawdown facilities.

  • lifetime mortgage
  • home reversion plan
  • drawdown lifetime mortgage
  • lifetime mortgage with a capped drawdown facility
  • lifetime mortgage interest only

Lifetime mortgage

The most common type of equity release is a lifetime mortgage, where you borrow money from your home’s value – but remember paying back does not affect how much your family would inherit when you die. In fact, this option could even increase their inheritance depending on how much interest is built up over the lifetime of the loan.

This type of lifetime mortgage has no set lifetime and you can usually release as much or as little cash as and when you need it. You do this by taking out a new lifetime mortgage plan with each release, so there’s no limit on how many times you take an equity release during your lifetime. Once the loan is repaid in full, any further value that builds up in your home will be passed on to your chosen beneficiaries

The final amount to repay the lifetime mortgage depends on several factors, such as: current market values; inflation rate; interest rates at time of repayment; length of time for which money is borrowed.

Home Reversion Plan

You might choose a lifetime home reversion plan instead. This option allows you to continue living in the home and, as long as you stay there, you don’t have to make any repayments on the loan. The amount of equity release funds available will depend on your current age and life expectancy

Lifetime mortgages with capped drawdown facilities

With lifetime mortgages with capped drawdown facilities, you can also choose to take out a lifetime mortgage that allows you to withdraw cash from the home (also known as capped drawdown ), but then caps or limits how much interest is built up over time. This means that when it’s all paid off, there’ll still be some equity left in your property for your beneficiaries.

In conclusion

In conclusion, equity release plans offer numerous unique features and benefits that make them good options for anyone considering how to free up some extra money to help them enjoy their later years. As long as you understand the equity release costs, the fees should be manageable.

For most people, equity release products are considered personal finance and therefore aren’t subject to CGT or inheritance tax , but this depends on your individual circumstances, so always make sure you get impartial advice before committing yourself.

See how much money you could be entitled to using the equity release calculator below

 

Want to find the best equity release deal or speak to a specialist to have your questions answered?

You can contact Key Equity Release, our partners, in one of 3 ways.   

  • Option 1 – Call directly on – 0333 567 1607
  • Option 2 – Book an appointment directly in the calendar below, and one of the Key team will call you back at your chosen time to discuss your requirements
  • Option 3 – Leave your contact details below and we will get in touch with you.

 

Option 1 – Call directly

Mon – Thurs – 9am – 8 pm

Friday – 9am – 5:30pm

Saturday – 9am – 5pm

Option 2 – Book an appointment, in the calendar below, for an equity release specialist to call you back when its convenient

Option 3 – Leave us your details and we will get in touch

Leave your contact details below and one of the equity release team will give you a call to discuss your needs.

Please note that all calls are undertaken by Key Equity Release, the UK’s leading equity release specialists. Key Equity Release is a trading name of Key Retirement Solutions Limited which is authorised and regulated by the Financial Conduct Authority

Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch.   I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder.  Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

Email – katy@helpandadvice.co.uk

Frequently Asked Questions

What is equity release?

Equity release is a financial product that allows homeowners aged over 55 to borrow money from their home and receive tax-free cash.

Equity release is a way of borrowing against the capital in your home without having to move out. These schemes are also known as lifetime mortgages or home reversion plans. The various types of equity release schemes allow you to take an income from your home, but will still stay in the property when you die.

How does equity release work?

Typically you can borrow up to 50% of the current market value of your home and release it as a tax-free lump sum or regular income. You repay the loan when you die, sell your home or downsize.

How much does equity release cost?

The costs of equity release are based on the interest rate on what you borrow and fees charged by the company.

You can find equity release providers in the UK offering a range of products and prices, but they all work within these similar principles.

Providers’ ongoing fees

These might be called ongoing administration fees or ongoing valuation fees. These ongoing charges will usually change with each provider but they could cost anything from £75 – £200 per year. This covers the lender’s fee for carrying out another valuation of your property during the loan period, preparing your statement at the end of the plan and sending it to you, plus ongoing legal fees or disbursements.

 

Share this page

Share on facebook
Share on twitter
Share on email
Share on linkedin