What will happen to equity release rates in 2025?

The Bank of England has cut its base rate twice this year, reducing costs for people wanting to borrow money.

And assuming inflation stays close to the Bank's 2% target, we can expect to see further falls next year. 

But what does this mean if you're considering tapping into the value of your property via an equity release plan?

Here, we explain what could happen to equity release rates in 2025, and offer advice on how to decide whether equity release is the right option for you.

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What influences equity release rates?

The base rate has fallen from 5.25% to 4.75% this year. Further cuts are forecast for 2025, so the expectation may be that equity release interest rates will fall in tandem. 

However, equity release rates are determined by many influences, so what will happen next is uncertain. Rates do broadly track the base rate, but other economic factors also have an impact.

Gilts (UK government bonds) are typically used to price equity release rates. Gilt rates move regularly in line with a variety of different market factors, such as levels of government borrowing, future rate outlook and demand for Gilts from financial markets. 

Rates have dropped slightly this year

Overall, equity release rates have remained fairly steady over the last year, dropping by about 0.5 percentage points. The average advertised rate fell from around 7.5% in October 2023 to just below 7% in October 2024, according to data from the Equity Release Council. 

The lowest rate currently available for a lifetime mortgage is approximately 5.9%. If, as anticipated, the base rate falls gradually in 2025, this could result in the top rate dropping to around 5.5%. 

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Fixed and variable rates 

Rates on lifetime mortgages, the most common type of equity release, are typically fixed for the life of the plan. 

This means that the rate is set before the money is released and will never change. 

Some providers do offer variable rates. With those, your interest rate will of course change, but with an agreed cap on it, so you’ll always know the highest amount you’ll owe each month.

Equity release interest rates fluctuate, so there is a chance that they could rise or fall significantly after you have taken out your product. Getting the timing right is therefore important. 

You can potentially switch to get a lower rate. If you have a lifetime mortgage you have the option to move to another provider, or to stick with the same provider but move to a different scheme.

However, most plans come with early repayment charges, which can be quite hefty. 

• Find out more: how to switch equity release plans to get a cheaper deal

Unlocking the value in your home

If you are tempted to go for equity release, you might be able to borrow more than you think. 

New research from SunLife found that people over 50 have lived in their homes for 22 years on average, having bought them for an average price of £149,000.

These homeowners estimate the value of their property today at an average of £334,000 – an increase of 124% over the 22 years.

Some people may be undervaluing their properties. For example, if they bought their house for £149,000 in 2002 and its value increased in line with the national average, it would in fact be worth £377,000 today (an increase of 153%). This represents an undervaluation of just over £43,000.

How your age impacts borrowing

The amount you'll be able to borrow depends on your age and how much your home is worth. You'll need to be at least 55, but the older you are, the more you should be able to borrow.

The maximum will vary from provider to provider. Currently, at age 65 you'll typically be able to borrow between 35% and 39% of the market value of your home, rising to 40% to 44% at age 70. If you were able to borrow 39% of £377,000, this would equate to just over £147,000. 

A medically enhanced equity release plan will allow you to borrow at the top end of these ranges if the lender believes you will live for shorter than the average timeframe (meaning the loan would be repaid sooner).

Weighing up equity release

Releasing money from your home can be useful if you have value tied up in your property but are worried about having enough to live on in retirement or to cover care costs. 

Freeing up money in this way does come with potential downsides. Not making any repayments on your loan will mean you end up paying far more than you’ve borrowed due to the compounding of interest. This could mean the value of your property is wiped out entirely.

Using equity release will most likely reduce the size of your estate and the amount you can leave behind for loved ones, as the lender is repaid before the rest is divided among beneficiaries. For this reason, it's a good idea to discuss with your family first. 

• Find out more: how does equity release work

Advice on equity release

Before taking out equity release, you will need to get regulated advice from a qualified equity release adviser. This is a requirement of the Financial Conduct Authority.

The Equity Release Council has a directory of financial advisers with equity release experience. 

Your chosen adviser should hold one of the following approved qualifications:

• CeRER (Certificate in Regulated Equity Release) – awarded by the Institute of Financial Services (IFS).
• CER (Certificate in Equity Release) – awarded by the Chartered Insurance Institute (CII).
• ERMAPC (Equity Release Mortgage Advice & Practice Certificate) – awarded by the Chartered Institute of Bankers in Scotland. The ERMAPC was discontinued a few years ago but may still be held by some advisers.

An adviser who isn't restricted to recommending products from just one or two firms is the preferred option.

There are also brokers of equity release products such as HUB Financial Solutions, Age Partnership and Key Later Life Finance, which can look across the whole of the market to find the product that meets your specific requirements.

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