By Tom Philips at March 20, 2024

Will Equity Release Interest Rates Go Down in 2024?

If you’re a homeowner aged 55 or over and are considering taking out an equity release loan in 2024, then you might be wondering whether interest rates will be going up, or down in 2024.

Unlike other types of interest rates, equity release interest rates tend to follow UK government bonds, rather than the Bank of England base rate which impacts all other interest rates.

UK Government bonds are commonly referred to as Gilts. If these Gilts rise, then equity release interest rates will rise, too.

As with any type of interest rate, it’s always hard to predict which way they’re going to go.

Each equity release product will carry their own interest rate, which will reflect the quality of the loan and its features. The better and more advantageous the features, typically the higher the interest rate will be.

It is important to remember that with all equity release loans, your interest rate should be fixed for the duration of your loan. This means that it will stay the same for the entirety of your loan.

Whilst it’s always hard to predict which way interest rates will go, it is often helpful to look at the previous year as an indication of what might be to come.

All equity release interest rates are explained and expressed in MERs (monthly equivalent rates). This shows how much interest is added each month, each year.

Interest rates for equity release plans started off as 5.99% in January 2023, which decreased to 5.24% by April 2023. Whilst the economy continues to recover from the economic uncertainty and unrest after the Covid-19 pandemic, interest rates continued to rise in 2023 to over 6% [1].

Whilst interest rates did start to decrease slightly in December 2023, it’s difficult to say whether these interest rates will continue to decrease in 2024 [1].

Below is a table, which shows the extent to which equity release interest rates changed across different products in 2023, compared to the UK gilt rate [1].

Month	Best rate	15 year gilt
January	5.99%	3.71%
February	5.49%	4.07%
March	5.43%	3.78%
April	5.24%	4.00%
May	5.52%	4.44%
June	5.87%	4.53%
July	5.87%	4.50%
August	5.78%	4.58%
September	6%	4.75%
October	6%	4.84%
November	6.1%	4.51%
December	5.28%	3.97%

Source: https://www.equityreleasecouncil.com/will-equity-release-interest-rates-go-down-in-2024/

Why are interest rates so important when it comes to equity release?

Interest rates are so important when it comes to taking out an equity release loan for several different reasons.

For example, what interest rate you take out on your equity release loan will naturally determine how much you are able to release from your home. The higher the equity release interest rate, the more you will have to repay in the future [2].

If you are considering taking out an equity release loan, then you need to understand how compound interest works. Compound interest is essentially interest on interest.

Whilst this is great whilst you are saving, it’s not so good when you are lending, as with equity release. When lending, compound interest means that the amount you owe will grow year on year, increasing your overall loan amount [3].

How is equity release interest paid back?

With equity release loans, you do not have to repay any of your loan until after you pass away or alternatively, move into a care home.

When it comes to the interest charged on your equity release loan, it is your choice whether you pay off the interest as you go, whilst you’re still alive, or after you pass away.

If you choose not to repay the interest on your loan as you go, then the amount of interest you are charged will roll up and your overall loan amount will continue to increase year on year.

This will be repaid once you pass away or move into a care home. When this happens, your house will be sold, and the loan will be repaid.

If you choose to repay the interest on your loan as you go, then the amount of compound interest will naturally be kept at bay. This means that when you come to sell your home to pay off the loan, there might be some left over to go to your loved ones as inheritance.

What affects the interest rate charged on an equity release loan?

Naturally, there are several factors that will impact which interest rate you are offered when it comes to opting for a lifetime mortgage.

These include the loan to value ratio you are applying for, your previous credit history, whether you have a traditional, pre-existing mortgage to pay off and your age.

1. The Loan to Value Ratio

The loan to value ratio that you apply for will have a huge impact on what interest rate you are approved for. As a rule, the more you borrow against the value of your home, the higher the interest rate you will be offered.

2. Which Product You Choose and Their Features

Each equity release lender will offer a range of different equity release products, all with different features.

Depending on your circumstances, you might be open to applying for quite a few of them. However, if you have ever suffered from a poor credit history, then you might only be able to apply for a few.

Some products contain extra features such as inheritance protection or downsize protection. When products contain these types of features, they will also usually bring a higher interest rate with them.

3. Your Previous Credit History

Your previous credit history will also have an impact on what interest rate you are offered.

For example, if you suffer from debt or have ever been issued a CCJ (a country court judgement) then this might mean that it’s harder for you to get an equity release loan in the first place.

If you are approved for one, then you might be forced to opt for a product with a higher interest rate.

4. Fixed vs Variable Interest Rates

Most equity release loans involve a fixed interest rate, rather than a variable one. This means that unlike other interest rates, yours will stay the same throughout the duration of your equity release loan.

This means that before you are approved for your equity release loan, you will be able to see exactly how much you will owe, year on year.

It is very rare to be offered a variable interest rate when it comes to lifetime mortgages, but if you are offered this type of interest rate, yours will be linked to the Consumer Price Index [4].

The Consumer Price Index is the main index across the UK used to measure the rate of inflation. In 2023, the Consumer Price Index (referred to as CPI) rose by just over 4% [4].

5. Your Age

Whilst your age will not have a direct impact on what interest rate you will be approved for, it will impact how much you are able to borrow in the first place. This will then impact your interest rate, as the more you borrow the higher your interest rate will be.

Where can I find the most competitive equity release interest rates in 2024?

If you are considering taking out an equity release loan and want to find the most competitive interest rate for you and your family, then seek the advice of an equity release adviser.

Your equity release adviser will be able to find you the best interest rate possible and will only recommend the very best products for you and your personal and financial circumstances.

Our team at Equity Release Warehouse are on hand to provide you with free, impartial, and confidential advice.

We will use our equity release calculator to find out how much you might be able to release from your home and will search the market for the very best offers. For more information, contact a member of our team by calling us on 0330 058 1579.