How much does equity release cost?

Equity release can be a great solution to many financial goals, but how much will it cost you in total?

The cost to setup an equity release will typically be between £1,000 and £3,000. This includes your financial advice, legal advice, and potential product fee. Over time, you will also be charged interest, and the cost of this varies on the interest rate secured and your release amount.

To find out how much your interest charges could be, skip straight to our Lifetime Interest Calculator.

You might be wondering, how these initial setup costs can vary so much, and where your money is really going? Let's take a look.

How much does equity release cost?

Many factors will change the overall cost of equity release. Typically, you will be charged between £1,000 and £3,000, to setup a plan, and interest will be charged over the life of the loan.

Although, you do not need to make monthly interest payments if you don't want to. Instead, they can roll-up in the background and be repaid at the end of the plan.

It is essential to fully understand the costs involved in equity release and why you are charged them.

The costs include:

• Financial advice
• Legal advice
• Product fee
• Valuation fee
• Redemption fee
• Interest charges

Let's break these down further.

Financial advice

Equity Release can only be arranged on an advised sale basis. You will need a qualified equity release adviser to guide you through the process and ensure equity release is right for you.

Advisers have no limit on what they can charge you, but most will be approximately £1,500 for whole of market advice. At Money Release, we charge a flat fee of £840 that is only payable on completion and never before.

Some brokers may offer free advice, but this is usually for limited access to plans. Our fee is for whole of market advice, so we will always be able to find you the best deals.

Legal advice

You will need a solicitor to act on your behalf to provide advice surrounding the legal implications of equity release.

Most firms will charge up to £1,000 for their equity release advice, but there could be other costs associated with the set-up of your plan, which we will discuss later in this guide.

Our recommended firm, Barton Law, charges £895, only payable on completion. This includes both VAT and a home visit from a solicitor to sign the legal paperwork.

Product fee

This is also known as the lender's or completion fee. Not all products have a fee; if they do, they can be as little as £5 or up to £995.

Paying a fee can allow you to obtain a lower interest rate, but it doesn't always make financial sense to pay a fee.

We will explain why you should or shouldn't pay a fee, depending on your specific requirements.

Valuation fee

A surveyor will visit your property as part of your equity release application, and the lender will make an offer on this basis.

The valuation fee is almost always free, except for specific products for properties valued at over £1,000,000. However, if your property is worth over £1,000,000, many plans still offer free valuations.

Redemption fee

When the plan ends and the equity release needs to be repaid, the lender will charge a redemption fee.

A redemption fee is simply a "closing the book" cost to remove the lender's charge from the title deeds. Often, this will be £125.

Overall cost to set-up

You might not have the savings to cover the set-up costs, but this is not a problem, as you can add the fees to the loan amount instead.

I suggest budgeting between £1,000 and £3,000 to set-up an equity release plan.

Interest charges

Equity release offers a lump sum of tax-free cash secured against your home, similar to a regular mortgage. You will be charged interest on the amount you release at a specific rate.

Unlike regular mortgages, you do not need to make any payments towards the plan until you pass away or move into long-term care.

If you do not make payments towards the plan, the interest will accrue over time.

At the end of the plan, you may find you owe a considerable amount more than you first borrowed. The interest charged will vary depending on the following:

• The amount you release
• The length of time the plan runs for
• The specific product and its interest rate

We will explore these in more detail later in this guide; however, you can expect interest charges to be the most significant cost associated to an equity release.

Will I be charged if I repay my equity release early?

You could incur an Early Repayment Charge (ERC) if you repay your equity release early. The amount will vary with each plan as they are structured differently.

The two types of structure are:

• Fixed
• Variable

The most common fixed structures last 4, 8, 10, or 15 years and decrease over time.

The variable structures are linked to GILTS (government bonds) performance. The minimum you could be charged is £0, and the maximum is up to 25% of the amount you initially borrowed.

Currently, all equity release lenders offer fixed structures, with a couple still offering a variable option.

However, most plans also offer features that protect against ERCs, including:

• Downsizing protection - if you wish to move home after five (some three) years of having your plan, you can repay the balance in full without incurring an ERC.
• Significant life event exemption (joint applications only) - if the first borrower passes away or moves into long-term care, you can repay the balance in full without incurring an ERC.

For more information and a further explanation on equity release with low ERCs, click here.

How much does equity release financial advice cost?

Equity release financial advice typically costs around £1,495 for whole of market advice.

However, our financial advice fee is just £840. This fixed fee is only paid on completion and never before. This reduces any risk of paying upfront costs and having an application refused or deciding you no longer wish to proceed.

Other firms structure their fees in different ways. Some will charge a fixed fee like ourselves (which can be significantly higher), and others might charge a percentage of the amount you release.

See how our advice fee is significantly less than other advice firms.

Are there upfront costs in setting up an equity release?

Usually, there are no upfront costs in setting up an equity release, as most advisors and solicitors only charge on completion.

However, it varies on the advice firm, solicitor and product.

Some advisors will charge an upfront application fee or a fee when the lender provides an offer.

Similarly, some solicitors may charge for their advice upfront. Our recommended equity release solicitor is Barton Law. They only charge £840 on completion, never before. However, you may be charged upfront if other legal work is required, such as creating a separation agreement or extending a lease.

Lastly, the valuation fee is almost always free, but there are a couple of scenarios that you could be charged. This includes:

• Your property is worth over £1,000,000 - However there are still options for free valuations.
• Your property required a reinspection - An example could be if your original valuation expires and you need another. Usually, this is only for very complex applications, as all valuations last for six months.

Of course, upfront fees are an added risk for you, as there are reasons why the lender could refuse your application. This includes your property construction and condition, as well as other factors.

We have written an article on why you could be refused equity release here.

You may also wish to withdraw your application if your circumstances change, which is another reason why our fee is only payable when you get your money.

Can I get free financial advice for equity release?

Some firms offer free equity release advice. Free advice sounds great, right? And it can be. However, there is one major downside.

Many of these firms will have restricted access to lenders and products, and the "commission" payment from the lender is often higher to cover the firm's costs.

Having restricted access is also known as "tied" advice, and the recommended product may not be the most suitable or cheapest plan available to you on the market.

Here at Money Release, we offer unrestricted access to lenders and products. We refer to this as "whole of market" advice, at a fixed fee of £840.

Receiving financial advice is a Financial Conduct Authority (FCA) requirement and, therefore, cannot be avoided.

If a tied advice firm has recommended you a product, feel free to contact us on 0207 158 0881 to compare it with the cheapest available on the market.

How much does equity release legal advice cost?

Equity release legal advice typically costs around £1,000, but it varies depending on your chosen firm.

We work closely with Barton Law, one of the UK's leading equity release specialist firms. They charge a fixed fee of £840, again only paid on completion, never before.

As you can see, usually, there won't be any upfront costs, which is very important to reduce any risk to you.

Similar to financial advice, it is an FCA requirement to receive independent legal advice from a solicitor.

Can my local solicitor provide my equity release advice?

A local solicitor may be able to provide your equity release legal advice. They do not need to specialise in equity release but must be suitably qualified to offer equity release advice.

It is important to remember that a specialist firm, such as our recommendation, Barton Law, handles many applications daily.

Smaller firms may only have one or two equity release applications each year, so it is worth checking that your chosen solicitor is comfortable with the process.

To find out precisely what your solicitor will do for you and why they are needed, read a guide we have written by clicking here.

Are there other legal costs involved in setting up an equity release plan?

If you require any other legal work during the set-up of your equity release, it will likely come at an extra cost.

Examples of these services include dealing with:

• Third-party lawyers in divorce cases and title transfers;
• Changes of name deed – e.g. if title deeds are still in a maiden/married surname and you have since changed your surname;
• CCJs & restrictions on title deeds;
• Bankruptcy issues & third-party lawyers;
• Lease extension & third-party lawyers;
• Property sale/purchase & third party lawyers;
• Freehold title split;
• Breaking a Trust;
• Transferring a property (into single or joint names);
• Varying a solar panel lease.

Again, this is another reason we believe it is crucial only to charge our clients a fee when you receive the money.

How much does equity release interest cost?

The cost of equity release interest will vary. It depends on several factors, including:

• The amount of funds you release
• The length of time the plan runs for
• Your recommended product

All equity release plans currently offer fixed-for-life interest rates, meaning they cannot change in the future. This is very useful for future planning, as you know exactly how much you will owe at any point.

Furthermore, unlike many other financial products, you do not need to make any payments towards the plan until the last borrower passes away or moves into long-term care.

Typically, the interest is calculated daily and added monthly.

Assuming you are not making payments towards the plan, you will be charged interest on the amount you release and interest being added over time.

Many people refer to this as "compound interest".

Please see below our interest calculator, which shows a plan's cost over its estimated term.

The interest rate you achieve will be based on many factors, including:

• The amount you release compared to your property value (loan to value). Typically the higher the percentage loan to value, the higher the interest rate
• The recommended product with desired plan features
• Your property type, construction and condition
• Any medical conditions you may have. Medically enhanced plans could lower your interest rate or increase the borrowing available to you

Use our calculator for free to find out the headline interest rate for different loan amounts.

What are the hidden costs in equity release?

Nowadays, there will never be any hidden costs in equity release.

However, if you receive means-tested benefits, unforeseen costs could directly result from taking equity release.

The funds you release are not classed as income, as it is a loan. Therefore, you should not declare it as income.

But, if you hold monies in your bank for an extended period of time, it will be classed as savings. This could reduce or stop your benefit payment.

If you are in receipt of means-tested benefits and are concerned by the impact equity release could have on them, you can contact us on 0207 158 0881, or read our guide by clicking here.

While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor legal advice and should not be relied upon.

To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.