Equity release has become an increasingly popular way for homeowners aged 55 or over to unlock cash tied up in their property. Whether you’re looking to boost your retirement income, help a family member financially, or give your home that much-needed upgrade, equity release could be the solution that helps you achieve your goals, all while staying in the comfort of your own home.
This guide will walk you through how equity release works, the options available, the costs involved, and the benefits it could bring. By the end, you’ll have a clear understanding of whether equity release might be the right choice for you
What is Equity Release?
Equity release enables eligible homeowners to unlock cash from the value of their home without needing to sell or move out. The cash you release is tax-free and can be used for anything from funding retirement plans to helping loved ones or travelling the world.
If you still have a mortgage, the amount you owe must be paid off using the money you release. The loan is then repaid from the sale proceeds of your home after you or the last remaining borrower passes away or moves into long-term care.
What makes equity release particularly appealing is that there are no monthly repayments required. This makes it an ideal option for retirees or those on a fixed income.
How Does Equity Release Work?
01. Lifetime Mortgages
A lifetime mortgage involves borrowing money secured against your home, while retaining full ownership. It allows you to release a portion of your home’s equity as a tax-free lump sum or in smaller instalments (drawdown).
Interest is added to the amount borrowed, and since no monthly payments are required, the total debt grows over time. This could reduce the amount you leave behind as an inheritance, so it’s important to factor this in during your decision-making process.
Key features of lifetime mortgages include:
- You remain the legal homeowner.
- The interest on the loan is compounded and added to the balance.
- You can choose plans that allow overpayments to reduce the overall debt.
- Some providers offer plans with the option to “ringfence” part of your home’s value for an inheritance.
02. Home Reversion Plans
With a home reversion plan, you sell all or part of your home to a provider in exchange for a lump sum, regular payments, or both. You retain the right to live in your home, rent-free, until you pass away or move into long-term care. When your home is sold, the provider receives their share of the proceeds.
Key features of home reversion plans include:
- You are no longer the full owner of your home but can live in it for life.
- You may receive less than the market value for the portion of your home sold.
- Funds can be taken in one go or as an income stream.
Both options have pros and cons, and your decision will likely depend on factors such as your financial goals, how much of your property you want to retain, and whether leaving an inheritance is important to you.
How Much Can You Borrow with Equity Release?
The amount you can borrow through equity release depends on several factors, including:
The Value Of Your Home
A professional valuation will determine your property’s market worth.
Your Age
Generally, the older you are, the more you can release.
Health
Some providers offer enhanced terms for applicants with certain medical conditions.
The Type Of Property
Listed buildings or those constructed with unconventional materials may have stricter limits.
You can receive the funds as a lump sum, as smaller instalments over time, or as a combination of the two. This flexibility allows you to tailor the plan to your needs.
What Are the Costs of Equity Release?
Equity release can involve certain upfront and ongoing costs, such as:
- Valuation fees – Charged by a surveyor to assess the value of your home.
- Legal fees – For solicitors who will handle the legalities of the process.
- Interest – Particularly for lifetime mortgages, where interest accrues over time.
- Early repayment charges – If you decide to repay the loan earlier than agreed.
Some providers may offer free valuations or cashback towards legal fees, so it’s worth researching your options.
The Benefits of Equity Release
There are many reasons why homeowners aged 55 or over consider equity release, including:
01
Home improvements
Update your home or garden to make living safer and more comfortable.
02
Helping family
Provide financial support for children or grandchildren.
03
Paying off debts
Eliminate existing mortgage or credit card debt, freeing yourself from monthly repayments.
04
Bucket list adventures
Travel to destinations you’ve always dreamed of visiting.
05
Peace of mind
Enjoy financial freedom in retirement without the stress of monthly payments.
Important Considerations
While equity release offers several advantages, it’s crucial to understand the key considerations:
- Interest will accrue over time, reducing the inheritance you leave behind.
- It may affect your eligibility for means-tested benefits, such as Pension Credit or Council Tax reduction.
- Ensure that your provider adheres to the Equity Release Council standards, which include a “No Negative Equity Guarantee”—you’ll never owe more than the property’s value upon sale
Are You Eligible for Equity Release?
Eligibility criteria vary by provider, but common requirements include:
- Applicants must be aged 55+ (for lifetime mortgages) or 60+ (for home reversion plans).
- The loan must be secured against your main residence.
- The property must meet minimum value thresholds and be located in England, Scotland, or Wales.
- The amount you can borrow must exceed a set minimum, typically £30,000
Final Thoughts on Equity Release
Equity release can open up financial opportunities, offering the flexibility to enjoy your retirement or achieve specific goals. However, it’s not a one-size-fits-all solution. It’s important to weigh the benefits and implications carefully, considering your future plans and financial situation.
For tailored advice, we always recommend speaking with an equity release specialist. Ensure your provider is FCA-regulated and consult with a professional to secure the best plan for your unique needs.