Equity Release

  • Use your home’s equity
  • No monthly repayments
  • Tax-free cash
  • Use for any purpose
  • Aged over 55
  • Tailored options
Equity Release Mortgage

What is Equity Release?

Over the years your home has grown in value and you’ve been paying off your mortgage. So the amount of equity will have grown dramatically. Equity release is the means to benefit now from this locked-in value your home has generated. You can turn it into tax-free cash.

You may be feeling cash-poor and unable to have the financial freedom you want in later life. But if you’re asset-rich then equity release can give you the freedom to do more than you might have felt possible – e.g. travel, refurbish your home, pay-off an interest-only mortgage or make a financial gift to your children.

There are two types of equity release: lifetime mortgages and home reversion plans. And if neither of these alternatives feels viable then there are some simpler alternatives you can consider.

Explore your options

  • Borrow up to 55% of your home’s equity
  • Use for any purpose
  • Plans are tailored to your needs
  • Protect your inheritance
  • Stay in your home
  • Lump-sum or drawdown options

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Who is using Equity Release?

Equity release is growing in popularity but is still a relatively little-used financial product. While there may be 10 million homes owned by over-55s there are fewer than 75,000 equity release plans issued each year. But its popularity is increasing with the lifetime mortgage option more popular than home reversion. The equity unlocked by customers using these plans represents an astronomically small proportion of the UK’s property wealth.

To use equity release customers must be a UK homeowner aged at least 55. The over-55s represent 30% of the UK population and around 60% of households who own their home (inc. those with a mortgage). People are living longer and a growing proportion is finding that their pensions don’t allow them to have the retirement lifestyle they would like. Often equity release is used by people who are asset-rich but cash-poor.

While customers must be aged over 55 the average age of an equity release customer is actually 70. And the average value of equity release by a customer is around £80,000. Funding home improvements and supplementing retirement income are the most common reasons for releasing equity.

Read: Equity release reaching record levels

 

Types of Equity Release

There are two alternatives ways to access some of the equity tied up in your house. One way is to secure a loan against a portion of the equity and settle the rolled-up interest at the end by selling your home (i.e. a lifetime mortgage). The other is to sell a share of your property now for an agreed sum and continue to live in it rent-free (i.e. home reversion).

Lifetime mortgages are more popular and in some ways more flexible. There are a number of alternatives:

  • Lump-sum lifetime mortgages
  • Drawdown lifetime mortgages
  • Interest-only lifetime mortgages

In addition, providers offer a range of additional features that can be built into your lifetime mortgage to ensure it meets your precise needs:

  • Enhanced plans – where your health is poor and the provider may allow you to unlock a greater share of the equity
  • Capital repayment plans – where you are allowed to repay a sum each year to help reduce the overall debt
  • Interest payment plans – the option to pay some of the monthly interest rather than rolling it up
  • Downsizing protection – if you want to move home you can do so and either repay the loan or take it with you
  • Inheritance protection – guarantee that a portion of your home’s value is passed to your family regardless of how much interest builds up
  • Income plans – a mixture of a tax-free lump sum at the start and regular monthly sums for a fixed period.

Is Equity Release right for me?

Whether equity release is right for you or not will depend on your goals and your personal circumstances. You should always take professional advice before making your decision.

Advantages

  • No monthly repayments (unless you choose to)
  • Cash is tax-free
  • Guarantee against negative equity
  • Plans are tailored to a person’s needs
  • Use cash for any purpose
  • You stay in your home

Disadvantges

  • It will reduce your family’s inheritance
  • Compound interest costs mount up
  • You may need to sell your home at the start (home reversion only)
  • There may be cheaper alternatives
  • A very long term commitment
  • It may reduce your tax & welfare benefits
  • It could take 8 to 12 weeks to set up

If you are relatively young and healthy then it may not be cost-effective to release equity using one of these products. With the way interest is rolled-up and compounded interest charges grow sharply once the plan has been taken out. The longer you hold the mortgage the greater the proportion of your home’s value that will be eaten up. There are other options you can consider.

How do I find the right Equity Release plan?

The only way to identify the right equity release plan is to take advice from a company that is qualified to give it. We’ve partnered with Fluent Lifetime who are FCA authorised and regulated and permitted to advise on equity release. They specialise in lifetime mortgages and not home reversion plans.

Fluent Lifetime is also a member of the Equity Release Council (ERC). The ERC requires all its member to abide by strict standards to ensure they act with integrity and transparency.

The right equity release plan may actually be to find another equity loan solution entirely. Equity release is not the right solution for many people simply because it will not meet their needs or there are cheaper options available.

 

Alternatives to Equity Release

If you are at the younger end of the 56 to 95 years old age range, are not cash poor or indeed not that asset-rich, or do not need some of the bells and whistles that can be included in a lifetime mortgage, then there are some other types of equity loan that could address your cash requirements:

  • Remortgage to release equity – you’ll have monthly repayments to make, but if you’re still employed or have some form of unearned income this may prove cheaper than a lifetime mortgage.
  • If you already have a mortgage, want to borrow more but don’t want to remortgage then a secured loan may suit you. These are otherwise known as second-charge mortgages.
  • There is a little-known product called a retirement interest-only mortgage that could be well-worth investigating.
  • Downsize your home and/or move to a less expensive area.
  • If you are finding that your pension income isn’t meeting your retirement needs then make sure that you are claiming all the benefits you qualify for and have cut your costs as much as you can.
 

Our Money & Credit Guides

If you’re uncertain which type of credit might suit you or you have a money problem then one of guides may help you. We summarise each type of loan and their pros and cons, and address issues regarding debt and credit ratings.

Equity Release FAQs

Equity Release: things to know before you enquire

Please note: this information is for guidance only. You should clarify the terms of any equity release product with the provider before entering into an agreement.

Should I get financial advice?

Yes. All equity release companies and regulated brokers will be able to advise on whether an equity mortgage is right for you given your needs and circumstances. You may also wish to use an independent financial advisor (IFA) to help you establish if a completely different financial product may suit you better.

How much can I borrow?

The amount you can borrow will depend on your age, the value of your property, and your general health and lifestyle. The average amount borrowed through an equity release plan is approximately £80,000 by someone aged 70. The typical equity released is between 10% and 55% of a home’s value. The maximum percentage available increases with the age of the applicant.

How much will it cost?

The headline interest rates are not dissimilar to ordinary mortgages. However, the thing to be aware of is that by choosing not to make monthly repayment and to roll forward the interest due you will “suffer” from the impact of compounding. This is where interest owed will itself trigger more interest. The longer this goes on for the quicker the absolute amount of debt grows.

There are some ways to reduce this impact such as:

  • Using a drawdown lifetime mortgage – you only draw the cash as you need it rather than as one lump sum at the start of the plan.
  • Using an equity loan that allows you to make either partial repayments of the capital each year, or some of the monthly interest.
Am I eligible for equity release?

Lifetime mortgages require you to be a UK homeowner aged 55 or older. Your property needs to be worth more than £70,000. A home reversion plan will need you to be aged at least 60 or 65 years old.

If you don’t qualify for equity release there are alternatives you can consider.

Will I still be able to move home?

Lifetime mortgages allow you to retain ownership of your home, unlike home reversion plans. A lifetime mortgage can be designed to ensure that you are free to move house as you wish e.g. to downsize.

Does equity release affect my benefits?

Yes, releasing equity this way and turning it into income can have an adverse on your tax status and ability to claim certain benefits. You should take financial advice on this if this is a major concern.

THIS IS A LIFETIME MORTGAGE WHICH MAY REDUCE THE VALUE OF YOUR ESTATE AND MAY AFFECT YOUR  ENTITLEMENT TO MEANS-TESTED BENEFITS. TO UNDERSTAND THE FEATURES AND RISKS, ASK FOR A PERSONALISED ILLUSTRATION.

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Written/Reviewed by: Amanda Gillam