Does everyone get the same equity release interest rate?
It’s important to know that not everyone gets the same rate. In fact, the best rates for equity release that you are offered may be below the average current equity release interest rates. This could save you potentially many thousands of pounds in interest over the life of your plan.
The Equity Release Council Autumn 2022 Report showed rates changing from 4.10% to 5.74% from January to August, but stated that the average equity release customer in the first half of the year: “Secured a significantly lower rate of 3.71%.”
This is because as well as looking at gilt rates and other factors to set their underlying equity release interest rates, lenders take into account each applicant’s circumstances when offering them a rate:
Loan to value (LTV)
Loan to value refers to the relationship between the amount you wish to borrow and the value of your property. Maximum LTV will be the maximum percentage of your property value that providers are willing to lend you. In general, the closer to this maximum you release, the higher the interest rate your lender will offer.
Equity release providers may not charge their best equity release interest rates on certain properties. They take account of factors such as a property’s location, condition and whether they anticipate it is especially likely to significantly increase in value. Sometimes, they will charge a higher rate to reflect the risk they are taking on by lending against a property that falls below their ideal criteria.
Your health and lifestyle
Having a past or current medical condition, or making lifestyle choices such as smoking doesn’t usually benefit you. But when it comes to equity release, you might qualify for an enhanced lifetime mortgage that secures you a better equity release interest rate, or lets you unlock more money from your home.
The product features you choose
There are hundreds of different equity release products on the market, which means there is great variety in the mix of product features available. These features include:
- Inheritance protection – a guarantee that your beneficiaries will one day be able to inherit at least some of the value of your home, regardless of how much interest accrues.
- A drawdown reserve facility – setting aside some of the cash you can release to access later on rather than as part of your initial release.
- Being able to repay some of the loan without penalty – some lenders let you pay off more of the loan than others before you incur charges.
Sometimes you will find that the best interest rates on equity release plans with features like these are higher than on plans with fewer features. Think carefully about which features you want, and whether the higher interest rate is worth it.
Providers’ lending criteria
You may find that one provider is unable to offer you equity release if you don’t meet their lending criteria, whereas another provider may accept you. However, the lender that accepts you may not offer the lowest equity release rates.
Some providers may appear to offer the cheapest equity release rate, but at the same time charge higher fees than others. They may even have fees that other providers don’t charge, such as a completion fee. Make sure you take fees into account when you compare equity release interest rates.