Minimising equity release setup costs: a guide

Understanding equity release setup costs and getting the best deal

Written in line with our editorial policy.

Equity release can be a valuable financial option for homeowners aged 55 or over looking to access the wealth tied up in your property. However, one key concern for some people considering equity release is the associated setup costs.

By understanding what costs are involved and asking the right questions, it may be possible to minimise equity release setup costs to ensure that you are getting the best deal possible.

To help you gather all the information you need, this article will delve into the following:

• What is equity release?
• Understanding equity release setup costs.
• Factors that can affect equity release setup costs.
• Ways to minimise equity release setup costs.
• Weighing up setup costs with the other costs of equity release.
• Your rights and protections for equity release setup costs.
• Importance of professional advice for minimising equity release setup costs.

We hope this article will help you understand everything you want to know about equity release setup costs. For further information and advice, and quotes so you can compare setup costs from different providers, please don’t hesitate to contact us.

Simply call us on 0808 178 3055 and we’ll arrange a no-obligation appointment with one of our selected advisers for you. You can also request a free call back here, or get a free quote and an initial indication of how much tax-free cash you could unlock.

What is equity release?

Equity release is a financial tool that allows homeowners aged 55 or over to unlock some of your home’s value into tax-free cash without having to sell the property or move out.

There are typically no monthly repayments to make on the loan as the interest can be left to roll up each month. Instead, the loan plus accrued interest is typically paid back through the sale of your home when you pass away or move into long-term care.

If you are concerned about the loan growing in size over time, there are repayment options available including interest-only plans and making voluntary partial repayments.

Equity release can be a particularly useful financial option for those seeking to top up a retirement income, pay off an outstanding mortgage or meet other financial needs. 

Not yet old enough to arrange a plan? There may be other ways to release equity if you are under 55.  

Understanding equity release setup costs

Equity release setup costs refer to the various fees and charges that a homeowner must pay when taking out an equity release plan. These costs can vary depending on the provider and the specific product chosen. They are in addition to the interest charges that accrue on a lifetime mortgage.

Types of equity release setup costs

• Arrangement fees: These fees are charged by the equity release provider to cover the cost of setting up the plan. They can range from a few hundred to several thousand pounds. Arrangement fees are typically used to cover administrative costs, such as application processing and underwriting.
• Valuation fees: A valuation fee is charged to assess the value of your property. This fee can vary depending on the size and location of the property. A professional valuer will inspect your home and provide an estimate of its market value, which will be used to determine the maximum amount of equity you can release. Some providers offer free valuation fees.
• Legal fees: You will need to appoint a solicitor to handle the legal aspects of the equity release process, and they will charge fees for their services. In addition to carrying out all the legal work required, your equity release solicitor will ensure that you are fully aware of the legal requirements, risks and benefits of a plan. 
• Fee for advice: It is typically a requirement to seek professional financial advice before taking out an equity release plan. This ensures you understand the implications and choose the right product for your needs. Financial advisers will often charge a fee for their services, which may be a flat fee or a percentage of the amount you release. In addition to this, lifetime mortgage advisers typically receive a payment from the chosen product provider, but this payment does not affect you.

Factors that can affect equity release setup costs

Some factors that can impact the cost of setting up an equity release plan include:

• The equity release provider: Different providers offer different fee structures and charges. It’s essential to compare multiple providers to find the most competitive fees.
• The type of equity release product: Some products may have higher setup costs than others. For example, a home reversion plan might have different fees compared to a lifetime mortgage.
• The value of your property: Higher-valued properties may incur higher valuation fees due to the increased complexity of assessing their value.
• Negotiated rates: Some providers may be willing to negotiate on certain fees, or waiver some fees as part of a special offer, potentially lowering the overall cost.

Ways to minimise equity release setup costs

Getting the best deal is so important, which is why you should always ask about low equity release setup costs when talking to your specialist. To help minimise equity release setup costs, you may wish to consider the following:

Compare setup costs from different equity release providers

Research and compare multiple providers to find the one with the most competitive fees and charges. For instance, Aviva does not charge upfront valuation fees on initial borrowing for properties worth under £5 million, nor does the provider Legal & General.

Of course, be sure to compare not only their setup costs but also the interest rates and other features of the equity release plans.

Consider equity release products with lower setup costs

Some equity release products may have lower setup costs than others. For example, drawdown lifetime mortgages may have lower arrangement fees than lump-sum lifetime mortgages.

However, the important thing when choosing a product is making sure it is the right option for your current and future financial goals. Be sure to weigh all the pros and cons of each product, as well as the setup costs and interest rates. Our selected advisers can help with this – call us on 0808 178 3055 or request a call back and we’ll arrange a no-obligation appointment for you.

Weighing up setup costs with the other costs of equity release

While setup costs are important to take into account, the other costs associated with equity release are also important. These include interest rates and early repayment charges and may make the biggest impact on your finances.

For example, securing a lower interest rate for life on your plan is likely to save you more money in the long run than what you might save on valuation or arrangement fees. By taking all of the costs into account, you can ensure that you are making a well-informed decision that considers the total cost of equity release.

Look for products that have competitive interest rates and allow for flexible access to your equity, as these features can help offset higher setup costs.

Your rights and protections for equity release setup costs

Equity release providers must adhere to regulations set by organisations such as the Financial Conduct Authority (FCA) and the Equity Release Council. These organisations ensure that providers are transparent about their fees and charges, and that customers are treated fairly throughout the process.

To ensure you are being treated fairly and that your adviser and provider are being honest and transparent about their fees and charges, make sure that you:

• Choose a provider that is a member of the Equity Release Council to benefit from all of their protections. This includes the rule that all customers must be given information about all the costs that you will have to bear in setting up the plan.
• Choose an equity release adviser who can compare quotes from different providers to weigh up fees and charges.
• Ask your adviser for a detailed breakdown of all the costs involved in setting up the plan through them.
• Seek legal advice to ensure that the equity release contract is clear and transparent about all fees and charges.
• Review all documents carefully and ask questions if you do not understand any aspect of the fees or charges.

For your peace of mind, our selected advisers will only recommend Equity Release Council-approved plans and will be able to help you with all of the above points. They’ll even be able to recommend an equity release solicitor for you to seek the legal guidance needed when you get to that stage. Just call us on 0808 178 3055 or request a call back and we’ll arrange a no-obligation appointment with an adviser for you.

Importance of professional advice for minimising equity release setup costs

Professional advice is essential for understanding the various equity release options and making the right choice for you. With the right professional guidance, you may even find you can minimise the initial setup costs, too. 

• Equity release advisers: These qualified professionals can help you navigate the equity release market and identify the most suitable products based on your needs and financial goals. They’ll be able to compare products for you and look for the most competitive equity release setup costs, interest rates and other relevant fees and charges.
• Solicitors: Legal experts can review equity release contracts and ensure that all fees and charges are transparent and fair. You can compare quotes from a number of equity release solicitors to find the most competitive deal before choosing. Read more about equity release solicitors here, including what they do, the fees they charge and how to find one.
• Valuers: Accurate property valuations are crucial for determining the amount of equity you can release. A qualified valuer can ensure that the valuation process is conducted accurately and fairly. As we mentioned earlier, some providers do not charge a fee for the valuations they arrange.

Speak to a specialist

By understanding the fees, charges and interest rates from different providers, you can make informed decisions that will help you better achieve your financial goals. That’s one of the reasons why we suggest talking to our selected advisers. 

When you request quotes from Equity Release Wise, our selected advisers will gladly explain the following to you and much more:

• The total setup costs for each plan they recommend.
• If any fees or charges can be negotiated or waived.
• How the setup costs and interest rates of different providers compare.
• What other costs you should be aware of when considering equity release.

To arrange an appointment, please call 0808 178 3055, or request a call back at a time that suits you.