How much does equity release cost?
Find out everything you need to know about the costs associated with equity release in our informative guide.
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Page last updated – 17th March 2023
Equity release is a popular financial solution for homeowners to access the equity in their property. However, before deciding on an equity release scheme, it’s crucial to be aware of the costs involved.
This article aims to provide a detailed breakdown of the costs associated with equity release to help you make an informed decision.
The article covers:
- Overview of equity release costs
- Equity release set up costs
- Ongoing equity release costs
- Redemption costs
- Hidden costs of equity release
- Equity release solicitor costs
Overview of Equity Release Costs
There are several costs involved in equity release, which can be broadly categorized into the following:
- Set-up costs
- Ongoing costs
- Redemption costs
Equity Release Set Up Costs
Setting up an equity release plan involves several fees, including:
An application fee is a charge levied by equity release providers to cover the administrative costs associated with processing your application for an equity release plan. The application fee can vary widely among providers and depends on factors such as the provider’s pricing strategy and the complexity of the application process.
Here’s a more detailed breakdown of what the application fee covers:
Administrative expenses: Equity release providers incur administrative costs when handling your application. These costs can include expenses related to document preparation, data entry, underwriting, and communication with you during the application process.
Credit checks and assessments: As part of the application process, providers may conduct credit checks and financial assessments to determine your eligibility for an equity release plan. The application fee may cover the costs associated with obtaining and analyzing your credit report and other relevant financial information.
Property assessments: In some cases, providers may require a preliminary property assessment to gauge the suitability of your property for an equity release plan. This assessment can help the provider determine the potential risks associated with your property, such as its location or condition, and the application fee may cover the associated costs.
Marketing and overhead costs: Providers may also use application fees to help cover their marketing expenses and other overhead costs, such as office space and staff salaries.
The application fee can range from £0 to over £500, depending on the provider and the specific equity release plan you choose. Some providers may offer a lower application fee as part of a promotional offer or waive the fee altogether under certain circumstances.
A valuation fee is a charge associated with obtaining a professional assessment of a property’s current market value. This valuation is required when taking out an equity release plan, as it helps determine the amount of equity available in the property and the maximum loan you can borrow.
The valuation process typically involves a surveyor visiting the property, assessing its condition, location, size, and various other factors, and then comparing it with similar properties in the local area to determine its value.
Valuation fees can vary significantly depending on several factors, such as the property’s value, size, location, and the type of valuation being conducted.
Here’s a more detailed look at the factors affecting valuation fees:
Property value: Higher-value properties usually require more extensive assessments and comparisons with similar properties in the area, which can result in higher valuation fees.
For example, a property valued at £200,000 may have a valuation fee of £100, while a property valued at £1 million may have a valuation fee of £500 or more.
Property size: Larger properties typically require more time and effort to assess, leading to higher valuation fees.
A small apartment, for instance, might have a lower valuation fee than a large detached house.
Property location: The property’s location can also influence the valuation fee. Properties in remote areas may require more travel time for the surveyor or involve additional research to find comparable properties, resulting in higher fees.
Type of valuation: The depth and complexity of the valuation can affect the fee. A basic valuation might cost less than a more comprehensive assessment, which could include a full structural survey or additional investigations into potential issues, such as subsidence or damp.
Valuation fees for equity release plans typically range from £100 to £500 or more, depending on the property’s value, size, location, and the type of valuation being conducted.
It is essential to understand the valuation fees associated with your chosen equity release product, as they can significantly impact the overall cost of the plan.
To get an accurate estimate of the valuation fee for your property, consult with your equity release provider or an independent surveyor.
Financial advice fee
Obtaining financial advice from a qualified adviser is essential, with fees typically ranging from £500 to £1,500 or more, depending on the complexity of your case.
Ongoing Equity Release Costs
After setting up the equity release scheme, you may have to pay some ongoing costs, including:
The interest rate charged on your equity release loan will accumulate over time, increasing the overall cost of the plan.
One of the conditions of a home reversion plan is that the homeowner is typically required to maintain the property in good condition.
This is because the home reversion provider has a vested interest in preserving the property’s value, as they will eventually sell their share when the homeowner passes away or moves into long-term care.
As a result, homeowners with a home reversion plan are responsible for ongoing maintenance expenses to ensure the property remains in good condition.
Here are some examples of ongoing maintenance expenses that a homeowner might encounter as part of a home reversion plan:
Routine repairs and maintenance: This includes tasks such as fixing leaky roofs, repairing broken windows, or addressing plumbing issues. The costs for these repairs can vary depending on the severity of the issue and the specific service provider.
Periodic maintenance: Some maintenance tasks need to be performed periodically, such as repainting the exterior or interior walls, servicing heating systems, or cleaning gutters. These tasks can incur costs depending on the frequency and extent of the work required.
Structural and major repairs: Occasionally, homeowners may need to undertake more significant repairs, such as addressing subsidence, replacing a roof, or upgrading the electrical system.
These repairs can be costly, but they are essential to maintaining the property’s value and ensuring a safe living environment.
Garden and outdoor maintenance: Maintaining the garden, lawn, or other outdoor areas may also be part of a homeowner’s responsibility under a home reversion plan.
This can include tasks such as mowing the lawn, pruning trees and bushes, or maintaining fences and driveways.
The actual costs of these ongoing maintenance expenses can vary depending on the property’s age, condition, and location.
It is essential for homeowners considering a home reversion plan to factor in these potential ongoing costs and ensure they can meet their maintenance obligations for the duration of the plan.
When you decide to repay your equity release loan or end the plan, you may encounter additional costs, such as:
Early repayment charge: An early repayment charge (ERC) is a fee imposed by equity release providers when a borrower decides to repay their loan earlier than the agreed term or switch to another provider.
This charge is designed to compensate the provider for the loss of interest income they would have received if the loan had continued for its full term.
ERCs can vary significantly depending on the equity release provider and the specific terms of your plan. Here are some factors that can impact the calculation of early repayment charges:
Loan type and plan terms: Different types of equity release plans, such as lifetime mortgages or home reversion plans, may have different early repayment charge structures.
Furthermore, the specific terms of your plan, including any fixed or variable interest rates, could also influence the calculation of the ERC.
Remaining loan term: The remaining duration of your loan can also impact the ERC.
Generally, the longer the remaining term of the loan, the higher the early repayment charge, as the provider would be losing out on more potential interest income.
Interest rates: Early repayment charges are often calculated as a percentage of the loan amount and can be influenced by prevailing interest rates.
If interest rates have fallen since you took out your equity release plan, the provider may impose a higher ERC to account for the reduced interest income they would receive on a new loan.
Provider’s specific calculation method: Each equity release provider has its own method for calculating ERCs, which can be based on factors such as the loan amount, interest rates, and remaining term.
Some providers may impose a fixed percentage of the loan amount, while others may use a sliding scale based on the remaining loan term or other factors.
It’s important to understand the potential early repayment charges associated with your equity release plan before deciding to repay your loan early or switch providers.
These charges can be substantial and may significantly impact the overall cost of your plan.
To fully understand the implications of early repayment and the potential charges, consult with your equity release provider and financial adviser.
They can help you determine whether early repayment is a suitable option for your specific circumstances.
Hidden Costs of Equity Release
Hidden costs are expenses that may not be immediately apparent or included in the initial breakdown of fees when considering an equity release plan.
It’s essential to be aware of these potential hidden costs to fully understand the overall financial impact of the plan.
Here’s a more detailed explanation of the hidden costs mentioned:
Higher interest rates for specific features
Some equity release plans offer additional features, such as drawdown facilities or protected equity guarantees, which can provide added flexibility or security. However, these features may come with higher interest rates, increasing the overall cost of the plan.
- Drawdown facilities: A drawdown facility allows you to withdraw funds from your equity release plan as needed, rather than receiving a single lump sum upfront. While this can provide greater flexibility, it may result in a higher interest rate compared to a standard lump sum plan.
- Protected equity guarantees: A protected equity guarantee is a feature that ensures a predetermined percentage of your property’s value will be preserved for your beneficiaries, regardless of the outstanding loan balance. This guarantee can provide peace of mind, but it may also come with a higher interest rate due to the additional risk to the lender.
Additional fees for switching between plans or providers
If you decide to switch to a different equity release plan or change providers, you may incur additional fees, such as exit fees, early repayment charges, or application fees for the new plan. These costs can be substantial and should be factored into your decision-making process when considering switching plans or providers.
Charges for making changes to your plan, such as adding a new borrower
Equity release plans can be relatively inflexible, and making changes to the terms or conditions of your plan may result in additional charges.
For example, if you wish to add a new borrower to the plan (such as a spouse or partner), you may be charged an administrative fee for processing the change.
These fees can vary depending on the provider and the specific change being made, so it’s important to understand any potential charges before making changes to your plan.
By being aware of these potential hidden costs, you can make a more informed decision about whether an equity release plan is suitable for your needs and circumstances.
Always discuss these potential costs with your equity release provider and financial adviser to fully understand the implications of the plan you are considering.
Equity Release Solicitor Costs
Hiring a solicitor is essential when entering into an equity release agreement. Solicitor costs typically include:
According to our research the average legal fees for an equity release solicitor are £1,058 including VAT depending on the case. It’s important to get a quote upfront and ensure you understand the fee structure before proceeding.
Disbursement costs are expenses incurred by a solicitor on behalf of their client during the legal process of an equity release.
These costs are separate from the solicitor’s own fees for their time and expertise.
Disbursement costs usually include fees for services, searches, and official documents required for the equity release transaction.
Some common disbursement costs associated with equity release include:
Land registry fees: These fees are paid to the Land Registry to register the new charge (the equity release loan) against your property.
Land registry fees vary depending on the value of your property and the specific transaction involved. For example, the fee for registering a new charge on a property worth £200,000 could be around £40.
Local authority searches
These searches are conducted by the solicitor to gather information about the property from the local council. This could include checking for any planning permissions, building regulations approvals, or other factors that could affect the property’s value or the equity release provider’s security.
Local authority search fees can vary depending on the location of the property and the specific searches required. The cost for a full local authority search might range between £100 and £200.
A bankruptcy search is performed to ensure that the applicant is not currently bankrupt or facing bankruptcy proceedings. This is important for the equity release provider, as it affects the applicant’s ability to enter into a legally binding financial agreement. Bankruptcy search fees are generally nominal, often around £2 per person.
This search assesses the environmental risks associated with the property, such as flooding, contaminated land, or radon gas presence. An environmental search might cost between £30 and £60.
Chancel repair search
This search checks if the property is within a parish where the owner may be liable for contributing to the cost of repairing the local church’s chancel. The cost of a chancel repair search can range from £10 to £30.
While these are just a few examples of disbursement costs, it is important to note that the actual costs may vary depending on the solicitor, the property, and the specific equity release transaction.
Always consult with your solicitor for a detailed breakdown of the disbursement costs associated with your equity release case.
John and Susan’s Lifetime Mortgage
John and Susan, both 65 years old, decided to take out a lifetime mortgage on their £400,000 property to fund home improvements and help their children with a deposit for their first homes. They approached an equity release provider, who offered them a £100,000 lifetime mortgage with a 4.5% fixed interest rate.
- Application fee: £500
- Valuation fee: £300
- Financial advice fee: £750
- Solicitor fees: £1,000 (including disbursements)
Total set-up costs: £2,550
- Interest charges: Over 15 years, the interest on the £100,000 loan at a 4.5% fixed rate would amount to approximately £90,000.
Redemption costs (if applicable):
- Early repayment charge: 5% of the loan amount if repaid within the first five years, which would be £5,000 in this case.
In this example, John and Susan’s equity release would cost them around £2,550 in set-up fees and approximately £90,000 in interest over 15 years, not including potential early repayment charges.
Margaret’s Home Reversion Plan
Margaret, a 70-year-old widow, decided to opt for a home reversion plan to release £150,000 from her £500,000 property. She agreed to sell a 30% share of her home to the equity release provider.
- Valuation fee: £400
- Financial advice fee: £1,000
- Solicitor fees: £1,200 (including disbursements)
Total set-up costs: £2,600
- Maintenance costs: Margaret was required to maintain the property in good condition, which cost her an average of £1,500 per year.
Redemption costs (if applicable):
- Legal and administrative fees: To end the home reversion plan and buy back the 30% share, Margaret would need to pay £1,000 in legal and administrative fees.
In this example, Margaret’s home reversion plan would cost her approximately £2,600 in set-up fees, and she would need to cover ongoing maintenance costs. If she decided to buy back the 30% share from the equity release provider, she would incur an additional £1,000 in redemption costs.
Understanding the costs of equity release is crucial in making an informed decision about whether it’s the right choice for you.
By considering set up costs, ongoing costs, redemption costs, hidden costs, and solicitor costs, you’ll be better prepared to navigate the equity release process.
Always consult a financial adviser and a solicitor with experience in equity release to ensure you’re fully aware of all costs and implications before committing to a plan.
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