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Want to know what equity release is and how it works? Read our guide below to learn more about the types of equity release, how much it costs, the advantages and disadvantages, and find out if it's right for you
SEO Specialist and Senior Copywriter
Published February 7th 2024
Updated on December 19th 2024
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What is equity release? Equity release allows homeowners, usually over the age of 55, to access the value tied up in their property without needing to move out. This option is commonly used by retirees to supplement their income, cover medical expenses, or achieve other financial goals. But it’s important to understand how equity release works and the potential implications before making a decision.
In this article:
Equity release is a way of freeing up cash from your home, without having to sell or move from the home you love. Read the article below to learn more about your equity release options and how equity release works
Equity release works by freeing up cash that is tied up in your home, giving you access to a cash, either as a lump sum or regular payments.
First, you will meet with a qualified equity release adviser who will assess your financial situation and explain your options.
Next, you will receive a detailed offer, including the amount you can borrow and the interest rates.
Once you accept, the funds are released, either as a lump sum or in installments.
Interest begins accumulating on the loan, but you won’t need to make repayments until the agreed-upon time (usually when you pass away or move into long-term care).
Find out how long equity release takes.
There are two main types of equity release products available: lifetime mortgages and home reversion plans.
Lifetime Mortgages: This is the most common equity release option, and similar to a standard mortgage, it is simply a loan secured against your home. You can usually choose to make repayments in instalments or repay the mortgage and interest when you die or permanently move into residential care.
Home Reversion Plans: With this option, you sell a portion of your home to a reversion provider in exchange for a lump sum or regular payments. In return, you have the right to live in your home rent-free until you pass away.
To be eligible for equity release, you must typically meet the following criteria:
Be aged 55 or older (for lifetime mortgages; 65 or older for some home reversion plans).
Own a property worth at least £70,000.
The property should be your primary residence (not a second home or investment property).
Your home should meet certain criteria regarding its condition and location.
Setting up a lifetime mortgage has more upfront costs than a home reversion plan, as like with a standard mortgage, you’ll have conveyancing and arrangement fees, as well as survey and valuation costs. Long term costs for both differ: with a lifetime mortgage, if the interest is added to the loan, the amount repayable increases over time; and with a home reversion plan, it’s unlikely you’ll benefit from an increase in property value over time.
Equity release can be fairly complicated, so it’s crucial you have a good understanding of the risks and rewards before you decide to move ahead. We outline some benefits and risks of both equity release types below. However, it’s always important to seek independent advice from an equity release adviser, so they can review your personal circumstances to advise if equity release is a good idea for you.
Provides immediate access to cash without the need to sell your home
Helps retirees supplement income, pay off debts, or fund medical bills
You can live in your home for as long as you wish, which offers peace of mind
You might reduce the amount of inheritance tax for your family to pay
Your entitlement to means-tested benefits may be affected
It can be complicated to reverse if you change your mind
It can be expensive: the interest on a lifetime mortgage is usually higher than a standard mortgage and the money paid for your home via a home reversion plan can be substantially less than market value
Any inheritance you’re able to pass down will be affected, therefore it’s important to talk through your plans with family members to avoid conflict further down the line
Equity release can be a helpful financial solution for many homeowners, but it’s not right for everyone. Consider it if you need access to cash, want to stay in your home, and are comfortable with the potential impact on your estate. However, it’s crucial to seek independent advice from a qualified financial adviser before proceeding.
Understand your options by getting in touch with one of our Move Specialists today.
The main ways to release equity from your home are:
Downsizing
Remortgaging
Secured/homeowner loans
Equity release schemes
For detailed information on the different ways to release equity from your property read our article.
The amount you can release depends on several factors:
Your age and health (older homeowners may be eligible for more).
The value of your property.
The type of equity release scheme you choose.
On average, you may be able to release between 20% and 50% of your home's value, but this can vary widely based on the factors mentioned above.
Equity release interest rates vary by lender as there is no set interest rate on equity release products Like standard mortgages though, the Bank of England base rate affects the equity release interest rates, which is currently at a high, and so the interest rates for lifetime mortgages are also high. The way you pay the interest will also be different by each lender, however most providers keep the interest rate locked in from when you sign up.
You can use the money in any way you want, for example, you could use the equity to pay for a once in a lifetime holiday, home improvements, in-home care or care home fees, help out family members or to supplement income.
Taking out a lump sum could affect your eligibility for means-tested benefits, including Pension Credit, Savings Credit and Council Tax Reduction. The benefits you would’ve been eligible to receive could be reduced or lost, therefore it’s important to seek independent advice from an equity release adviser before doing anything.
The two types of equity release (lifetime mortgage and home reversion plan) work in different ways, however both still allow you to ring fence some of the value of your property as an inheritance for your family. If you are thinking about doing this, bear in mind your family may have to pay tax on the value they inherit from you, here we look into what is inheritance tax.
Get in touch with one of the team
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