What do high interest rates mean for equity release borrowers?

Weighing up the pros and cons

For many homeowners considering equity release at the moment, one question keeps coming up: Should I wait until interest rates come down?

It’s understandable. Interest rates today are higher than many people became used to over the last decade. Because equity release is usually a long-term commitment, even small differences in rates can have a noticeable impact over time.

But higher rates do not automatically mean equity release is the wrong option. Modern plans offer more flexibility than many people realise, including ways to reduce the long-term cost of borrowing.

This guide explains what higher interest rates could mean for you, how they affect costs over time, and some of the practical options available to help keep costs under control.

Why are interest rates higher?

Interest rates across the mortgage market have remained higher than many people became used to during the period of ultra-low rates after the 2008 financial crisis. Interest rates on lifetime mortgages (the most popular form of equity release) increased significantly about four years ago and remain at similar levels.  

Speaking earlier this month, Equity Release Council chair David Burrowes said: “Like other parts of the mortgage market, it’s clear the uncertainty dominating the UK and global economies, driven by the conflict in Iran, is contributing to higher interest rates and borrowing costs.

The best available equity release rate on 1 May 2026 for a 70-year-old borrowing the maximum possible against a £200,000 property was 6.51%. You may be offered different rates depending on your circumstances and the plan selected. Rates vary based on factors such as how much you want to borrow, your property and the features included within the plan.

How have equity release rates changed?

Although interest rates remain higher than the ultra-low levels many homeowners became used to in previous years, there have been signs of improvement.

According to Mortgage Strategy, average lifetime mortgage rates stood at 7.13% in November 2025, compared with 8.13% at the beginning of November 2022.

This highlights the fact that borrowing costs can rise and fall over time as economic conditions change. While many people hope rates will continue to reduce, predicting exactly what will happen next is difficult. Equity release is usually a long-term decision, so rates are only one part of the picture. Your personal circumstances, your goals and the flexibility offered by a plan can all be just as important.

Do you pay interest on equity release?

The vast majority of equity release plans today are lifetime mortgages. These allow you to borrow against your home and, as with most other loans, come with an interest rate. In the case of a lifetime mortgage, the interest rate you get is fixed for the duration of the loan.

Unlike a standard mortgage, you don’t need to make monthly repayments. Instead, interest is added to the loan and repaid when you pass away or move into long-term care, usually through the sale of your home. 

If no payments are made, the interest builds over time on a compound basis. This is sometimes called roll-up interest, meaning interest is charged on both:

• The original amount borrowed. 
• The interest already added to the loan. 

This is why the amount owed can increase significantly over many years. Some plans, however, allow you to pay some or all of the interest each month, reducing the rate at which the money owed builds up.

What difference can a higher interest rate make?

Even a relatively small change in interest rates can affect how much is eventually repaid.

For example:

Say you borrow £60,000 and choose to make no monthly repayments:

• At the 1 May 2026 best rate of 6.51%, after 15 years the balance could grow to around £154,500. 
• If the rate were 5.51%, the balance after the same period would be closer to £134,000.
• If the rate was 1% higher at 7.51, the balance after the same period would be £177,700.

Of course, actual figures will depend on your age, plan type, property value and personal circumstances.

Are equity release rates fixed?

Most plans from lenders approved by the Equity Release Council provide a fixed interest rate for life. That means:

• Your rate will not increase later if mortgage rates rise.
• Any monthly interest payments you choose to make stay the same. 
• You know from the outset how interest will be charged. 

Some lenders do offer variable rates. For your protection, these normally have limits built in so that the rate you pay won’t go above a pre-determined maximum level.

 What affects the interest rate you’re offered?

There is no single rate for everyone. Lenders look at several things before offering you a bespoke interest rate, including:

• How much you want to borrow: Borrowing a smaller percentage of your home’s value can sometimes lead to lower rates.
• Property type and value: Construction type, condition and location of your home may affect the plans and interest rate available.
• Plan features: Extra flexibility, such as inheritance protection or drawdown facilities, can sometimes affect pricing.
• Health and lifestyle: If you have certain health or lifestyle conditions such as a high BMI, high blood pressure or a history of smoking, you may qualify for an enhanced lifetime mortgage that could grant you access to a lower rate, a higher cash release, or both.

Should you wait for rates to fall?

The reality is that nobody can predict with certainty where interest rates will go next. While future reductions may lower borrowing costs, waiting can also mean putting important plans on hold.

That could include:

• Paying off an existing mortgage.
• Clearing loans or credit card balances that are proving costly to service.
• Helping your family financially, such as help to get on the property ladder.
• Improving your home. 
• Boosting your retirement income. 
• Covering rising living costs. 

The right timing often depends less on trying to predict the market and more on whether equity release helps you achieve what you need today. That said, high interest rates are certainly a factor to take into account.

Ways to reduce the impact of higher rates

If higher interest rates are a concern, there are several options worth considering.

Drawdown lifetime mortgages

Rather than taking all of your tax-free cash release up front, a drawdown plan allows you to release an initial amount and leave the rest in reserve. You only start paying interest on each release once you actually withdraw it.

For example:

Instead of releasing £100,000 immediately, you might initially take £40,000, leaving £60,000 available for later. That would mean interest only starts to accrue on the £40,000 until you access more cash. This can help reduce significantly the amount of interest that builds up over time.

Interest-paying plans

Some plans allow you to pay all or some of the interest each month.

For example:

If monthly interest on a loan is £250 and you choose to pay it all each month, the balance itself would remain broadly unchanged rather than growing year after year.

Some people like this option because it helps preserve more of their home’s value to pass on to beneficiaries.

Making voluntary repayments

Many lifetime mortgage plans allow you to make partial repayments of the loan itself each year without penalties. Some lenders allow borrowers to repay up to 10% of the original loan amount each year without triggering early repayment charges (ERCs), although this varies by product.

For example:

A borrower with a £70,000 loan may be able to repay £7,000 each year without charges. This can help reduce the amount of interest building up.

Some products have fixed early repayment charges that gradually reduce over time before eventually reaching zero.

Others may allow repayment without charges in certain circumstances, such as:

• Moving into long-term care. 
• Death of a borrower in a joint application. 
• Downsizing under qualifying rules. 

The rules vary between lenders, so when you get equity release advice, be sure to let your adviser know that you might be interested in making early repayments if this is something you are likely to do.

Home reversion plans

Although lifetime mortgages are the most common form of equity release, there is another option called a home reversion plan.

With a home reversion plan, you sell a percentage of your home to a provider in exchange for a lump sum or regular payments. You continue to live in your property as a tenant, usually rent-free for life.

Because you are not borrowing money, there is no interest charged, which means there is no loan balance increasing over time.

However, there are important things to consider. As the home reversion company owns a share of your home, you would receive a smaller proportion of the sale proceeds in the future. This could reduce the amount left for your estate or loved ones.

Home reversion plans are less common than lifetime mortgages today. But for some homeowners who are particularly concerned about interest building up over time, they can be worth considering alongside other options.

Don’t forget the safeguards

Some homeowners still worry about high interest rates meaning they end up owing more than their home is worth. But most modern plans include a ‘no negative equity guarantee’. This means you or your estate will never have to repay more than the property’s sale value, provided the terms and conditions of the plan have been met. 

At Equity Release Wise, our selected advisers only recommend plans that come with this guarantee, so you’ll never owe more than the value of your home.

Is equity release still worth considering when rates are higher?

Higher interest rates do increase borrowing costs, so it makes sense to understand how they may affect you over the long term before making any decisions. Thankfully, flexible features such as drawdown facilities, interest payments and voluntary repayments can give you some control over the long-term cost of borrowing.

Rather than asking “Are rates too high?”, a more useful question may be: “Does equity release still help me achieve what I need it to?”

For some homeowners, the answer may be no. For others, it could still provide valuable financial flexibility despite today’s rate environment.

Looking for equity release advice?

If you want specialist equity release advice, please get in touch today. Our selected advisers are ready and waiting to provide friendly, informative advice to UK homeowners aged 55 and over. 

Call us free on 0808 178 3055 to arrange your initial appointment, or request a free callback here for a time convenient for you.