How Much Does Equity Release Cost In 2024

How much does equity release cost?

Equity release is a way of releasing the value of your home without having to move out. In 2024, understanding how much equity release costs is essential for making an informed decision.

The initial set-up costs for equity release include paying for advice and application fees. Depending on the type of plan you choose, these fees can range from £1,500 to £3,000, according to Money Saving Expert. Additionally, interest rates on lifetime mortgages typically start from around 6%.

It’s also important to consider other costs associated with equity release, such as document preparation and legal fees, which vary depending on the provider. Credit report fees are usually between £30 and £50. Some providers may also charge loan origination fees.

When considering equity release, it’s wise to compare a few prices before deciding, as solicitor fees vary widely. Researching the different types of plans available and their associated costs is key to determining whether equity release is right for you in 2024.

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How much does it cost to release equity in your home?

If you’re nearing retirement or already retired and own your home, equity release could be used to release money tied up in your home. This money can be used for your retirement years or to support your family financially by tapping into inheritance money early.

As with any financial decision, you will have questions, and usually, the first one is how much does it cost to have a Santander equity release arranged?

There are a few fees involved. Some are payable upfront; others can be added to your loan or paid from the money released once an equity release plan is completed.

The fees are variable and will include three services:

  1. Your financial advisor fees

Specialist financial advice is required before taking out an equity release plan. The fees vary by the financial advisor and are usually paid after your plan is completed.

Some advisors charge a fixed fee, others a percentage of the total money released. Figures from April 2021 issued by the Equity Release Council show that the average lump-sum payment customers released was £96,483, and for those using drawdown, the initial payment taken averaged £64,797.

Percentages of funds released as fees can be 1.95%. If you were to release a lump sum of £96.483, the fee payable would be £1,881.42 based on a 1.95% fee. In cases where a percentage is used to calculate fees, check for minimum fees as releasing £10,000 could be subject to a minimum flat fee of £995 or upwards.

The fees for financial advice don’t always need to be paid upfront. Many are paid on completion; some advisors will provide a no-completion, no-fee service. Others will charge for advice regardless of whether your plan is completed and you receive funds or not.

  1. The lender fees

Lenders will have arrangement fees which are to cover their costs as they need to arrange for a property valuation and to cover the legal costs involved in setting up your plan. Depending on the lender you choose, there can be an application fee to begin the application process.

Generally, lender fees tend to be around £995, including legal, application, and surveyor fees. Like your advice fee, lenders can allow their fee to be paid on completion or added to the loan amount.

Remember that any fees you add to your loan will be subject to compound interest, which will increase the cost as the interest accrues on the whole balance with interest over the life of the plan.

Regarding the surveyor costs, equity release providers base the maximum you can release on your property’s current market valuation. Your home needs to be in a good state of repair to be able to use it as security.

Suppose the surveyor identifies any issues affecting your home’s structural integrity. In that case, you may be required to have repairs carried out to bring your house up to standard before it can be accepted as security.

Where necessary repairs are identified, this could substantially increase the cost. It may be possible to use funds released for home repairs, but it will need to be agreed upon with the provider before they approve the release of funding.

  1. Your solicitor’s fee

You must meet two legal requirements for setting up an equity release plan. First, you need to meet face-to-face with a solicitor, and second, the solicitor you choose needs to be independent.

That means that, unlike typical mortgage products where the lender can provide free legal services from their panel of solicitors, that’s not possible with equity release solicitors. There can be no affiliation between the lender and the solicitor acting on your behalf.

Typical fees for solicitors overseeing equity release is around £1,000. You’ll be required to bring ID verification at the face-to-face meeting.

Your solicitor must verify your identity to comply with UK anti-money laundering legislation. Once your ID is confirmed, it’s the solicitor’s job to check the details on the property’s title deeds are correct and up to date and that you have sufficient building insurance in place.

Your solicitor only starts work after a lender has provided an initial offer for you to accept. When you receive your offer and are happy to proceed, that’s when to make an appointment with an independent solicitor to oversee the process. If you have an existing mortgage to be paid off, your solicitor will also handle this for you, paying what’s left after all fees due paid are settled by bank transfer.

A solicitor can only oversee the legalities of your plan but cannot advise on any aspect of it. Only a financial advisor can advise you on financing options. While any conveyancing solicitor can act as your independent solicitor, working with someone specialising in equity release is worthwhile.

There’s an organisation called the Equity Release Solicitor’s Alliance (ERSA). Equity release solicitors are all members of the Equity Release Council and therefore have more experience in this type of finance. You can find a list of members on their website – You aren’t required to use an ERSA law member, but you need an independent solicitor to act in your best interest.

Stamp Duty Fees

While all providers will tell you that the money released is tax-free, it is not always clear that it is subject to stamp duty tax. This becomes an issue if you release over the threshold, which as of 2024, is £125,000.

If you release equity over £125,000, a 2% stamp duty tax may be incurred, depending on your personal circumstances. The rates increase to 5% for funds released between the amounts of £250,001 – £925,000, with higher rates for larger sums.

These rates apply to residential homes that are your primary residence and not to second homes. If you’re using an equity release provider that allows for equity release on a second home, a stamp duty of 3% applies to all funds released up to £125,000, then increases to 5% for funds released above that figure.

Your financial advisor will discuss stamp duty with you from the outset if it applies to your situation.

How much does it cost to ‘arrange’ equity release?

Arranging an equity release plan or lifetime mortgages over 55 usually costs between £2,000 and £3,000. The total cost of equity release will be much higher when you factor in compounded interest rates. The two to a few thousand it costs to get your funds only start your plan. The real cost is what accrues over the life of the lifetime mortgage as interest is charged on interest accrued.

Most providers state they use compounded interest. To be clear, that means it is continuously compounded interest that applies interest to the capital owed plus interest. In practice, using equity release for a lump sum payment of £10,000 at a fixed rate of compound interest of 4.5% applied annually would cost £450 in the first year, then £470.25 in the second year, £491.42 the following year and so on.

By year five, an initial £10,000 equity release plan would have climbed to a balance of £12,461.82. As you can see, from the initial interest of £450 in the first year, over five years, that increases to £2,461.82 in interest charges.

That’s based on a minimum of £10,000. The average customer release is far higher, so compound interest’s effect must be understood before entering into an equity release plan. It’s also why the Equity Release Council require all providers to have a no negative equity guarantee as, without it, costs would surely escalate beyond your home’s value.

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How 1st UK Can Help You Release Cash Tied Up in Your Home

1st UK is experienced in retirement planning and knowledgeable of the equity release market. We operate independently, so we’re well-positioned to provide our customers with a whole market comparison and review all the equity release companies to find the best rates on the best terms with guarantees for you and your family’s financial protection.

To find out exactly how we can be of service to you and if we can unlock cash tied up in your home to help you fund your retirement years, contact a member of our team today.