Which factors will influence rates this year?
Several key factors are shaping equity release interest rates at the moment. From the Bank of England’s recent decision to lower the Bank Rate to shifts in gilt yields and global economic challenges, these elements are creating a complex picture. Let’s take a closer look at what’s driving rates right now.
Interest rates
The interest rate you get when taking out a lifetime mortgage may be influenced by the Bank Rate (interest rate). However, the two are not locked in together, so interest rate cuts don’t automatically translate to lower equity release rates.
On 6 February, the Bank of England reduced the Bank Rate from 4.75% to 4.5%, marking the third cut since August 2024. This decision aimed to alleviate cost-of-living pressures and stimulate economic growth.
So, did the Bank Rate cut have a big impact on equity release rates. Unfortunately for borrowers, the answer is ‘no’. Despite anticipation of the 6 February cut, the best equity release rate had actually risen from January’’s 5.80% to 6.24% by 2 February. It fell just slightly to 6.15% following the drop in the Bank Rate on 6 February.
Speaking to The Times in January, chancellor Rachel Reeves said that the UK could be in line for up to six interest rate cuts by the middle of 2026, highlighting a forecast by the investment bank Goldman Sachs. This may translate to lower rates on equity release lending, but other factors will arguably play a bigger part.
Gilt yields
Rather than the Bank Rate, equity release providers primarily base their rates on gilt yields (returns on UK government bonds). Unfortunately for equity release borrowers, the recent period has seen consistently higher gilt yields. That has continued into 2025.
In January, Hargreaves Lansdown saw the highest number of gilt purchases in four years, partly driven by the recent increase in gilt yields.
Despite this, analysts forecast that 10-year gilt yields could decrease, with Goldman Sachs forecasting that 10-year gilt yields will fall to about 4% by the end of 2025. That’s almost a full percentage point down from their recent peak of 4.9% which was seen on January 13 – the highest since 2008.
However, predictions about falling gilt yields have been wrong before, and could be again. Global events sometimes lead to increased government borrowing, which pushes up investor demand for gilts, and therefore the gilt yield.
Commercial factors
Equity release providers factor other considerations into the rates they set for customers, from potential future changes in interest rates and gilt yields, to expected changes in property values.
