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Equity release mortgage
Tell us about yourself and our broker partner will help find the right equity release options for you.
What is equity release?
Equity release products, sometimes known as an equity release mortgage, enable you to take some of your homes value as tax-free cash, without having to sell it. This may even be possible if you’re still repaying your existing mortgage, although you'll need to be 55 or older to qualify.
It can be beneficial for certain older homeowners, especially if the value of their home has increased significantly since they bought it. The cash released can be used for any purpose, but common uses are:
To help fund retirement
To help family members to get onto the property ladder
To repay the capital on an interest-only mortgage
For the provision of later life care
Releasing equity is an expensive way to borrow money, however, and it reduces the value of your estate. This is because the value you take from your home (equity) will need to be repaid to the lender when your home is sold - after you pass away, or go into long-term care.
What is equity?
Equity is simply the portion of your home that you own outright - so any deposit you put down and whatever you've repaid so far, compared to the current value of your home. You also gain more equity when your home increases in market value.
To calculate your equity, find out how much your home is currently worth and deduct your remaining mortgage balance from that.
For example: If your home is worth £250,000, and you only have £50,000 left to repay, you have £200,000 in equity.
How does equity release work?
Unlike releasing equity, which can be done when using a traditional remortgage deal, equity release has a different meaning. This can be very confusing as they are so similar, but equity release refers specifically to equity release products.
There are two types of equity release product – lifetime mortgages and home reversion, although the former are far more popular due to being more flexible than home reversion plans.
Lifetime mortgages
With a lifetime mortgage you borrow some of the equity held in your home, and won't need to repay it during your lifetime. You also won't need to move out of your home at any point throughout the lifetime mortgage term, unless you want to.
You're charged interest on the loan for the full mortgage term, but this can be added to your loan and repaid from the proceeds when your home is eventually sold on.
Although you're under no obligation to repay the interest, you can pay or partially repay it if you prefer. Payments made during the term of the lifetime mortgage reduce the amount the lender takes when your home is sold. Any remaining profits can then be passed on to beneficiaries.
Payout options
You can choose:
a one-off lump sum of cash
a draw down option - which involves taking a smaller lump sum and holding a reserve of cash to be drawn down in installments as and when you need it
Both methods are entirely tax-free
As you only pay interest on the amount of the loan that you have taken (or drawn down) the draw down payout can be a more economical option.
Can I move home?
Yes, you can move home with a lifetime mortgage, although the process will be slightly more complicated as the equity release provider will need to approve your new property.
Home reversion plan
Home reversion plans are still available from some equity release providers, but is considered slightly more risky, as it involves selling some or all of your home to a home reversion company. This way you access the monetary value you would get from selling it, but without having to leave your home.
You’ll need to be a little older to access home reversion, as most providers have a minimum age requirement of sixty-five.
The home reversion company buys your home (or a percentage of it) and gives you the money straight away. It won't need to be repaid, as they sell your home after you die, or when you go into permanent care to make their money back.
Please note: You won't receive full market value for your home when you sell it through home reversion - typically you'd be offered between 20-60% of it's actual value.
The amount you're offered for your home depends on the market value of the property, your age, and your current health. Older applicants, or those with life limiting illnesses are likely to benefit from higher offers than younger, healthier people.
Payout options
Similarly to lifetime mortgages, you can choose to take the money as one tax-free lump sum, or as smaller increments of the total amount (sale price) you agree upon.
Can I move home?
No, not with a home reversion plan - so it’s only suitable if you definitely want to remain in your home for the rest of your life.
You'll have a rent-free lease, allowing you to stay in your home for the rest of your life.
To leave the plan early, you have to buy back your home (or the share of it you sold) from the home reversion provider at full market value, even though they bought it for much less.
Is it safe?
Equity release is not without risk, but so long as you ensure that your provider is a member of the Equity Release Council (ERC), however, you're protected by the ‘no negative equity guarantee' So:
You, nor your dependents, ever owe more than your home is worth - even if the amount left post-sale is not enough to repay the outstanding loan
You have the right to remain in your home for life or until you enter long-term care
With a lifetime mortgage (but not home reversion) you can move home, providing your new property continues to meet the lender’s security criteria
Equity release interest rates must be fixed or variable with a capped upper limit for the life of the loan
You have the right to make voluntary penalty-free repayments, subject to lender criteria
It's also a requirement of the Financial Conduct Authority (FCA) that you receive advice from a fully qualified equity release adviser before going ahead with any form of equity release. They can explain the risks, and how to mitigate some of them if you’re concerned.
Equity release interest rates and other charges
Lifetime mortgage costs
Some lifetime mortgages have an arrangement fee attached to them, which is either a set figure, or a percentage of the value you borrow. Most providers carry out the valuation of your home for free, however there may be a charge.
You'll also need to organise a solicitor to act on your behalf and charges will vary by provider, but are typically £500-£1000.
Home reversion plan costs
One of the main reasons that people opt for home reversion is that there are no repayments to make and therefore no interest rates. You simply receive an advanced payment on the sale of your home. In some cases an arrangement fee may apply to setting up the plan, however.
You should also consider that you won't receive market value for your home, which could be seen as a cost or loss.
How to get the best equity release rates
If you opt for a lifetime mortgage, interest is the major cost - although you don't have to pay it monthly unless you want to. The rates must be fixed for the lifetime of the mortgage or capped for the lifetime of the mortgage if you choose a variable rate.
If you choose not to pay your interest monthly, it's ‘rolled-up’, meaning it’s added to the figure you've borrowed. Rolled up interest is compounded, so your balance increases very quickly.
Compound interest is where interest is charged on top of previous interest an the capital.
If you hope to leave an inheritance it's worth making repayments on a lifetime mortgage if affordable. Even partially repaying the interest could prevent the debt from wiping out the entire value of your home when the lender sells it to recoup the loan.
Compare equity release rates
As with any loan product, interest rates vary by lender - but generally equity release tends to be more expensive than a traditional mortgage.
To compare the best rates for equity release it's important to speak to a broker with membership to the ERC. They are specially trained to assess the risks associated with equity release mortgages, but can also compare deals with all ERC approved lenders.
We work in partnership with Responsible Equity Release, who are members of the Equity Release Council (ERC).
How to release equity from your home
Enter your details
Enter your details into Responsible Equity Release's free calculator to find out how much you can release.
Compare plans
See the range of options and features currently available in the equity release market.
Get advice
A fully qualified adviser will help you to understand if equity release is right for you.
Which companies offer equity release?
Some of the top providers of equity release mortgages in the UK include:
Legal & General
Aviva
LV
Sun Life
Age Partnership
However, to find the best equity release company for your needs, you should consult a specialist broker who can compare deals from across the market to find the right one for you.
Am I eligible for equity release?
Each equity release provider has their own criteria for the different products in their range, but generally, you'll need to meet the following requirements:
Be aged 55 or over (65 or over for home reversion) - if applying jointly, both applicants must meet minimum age requirements
Own a property in the UK worth £70,000+ - some lenders only accept mainland residents
The property must be your main residence
Intend to release at least £10,000 - £15,000, depending on the lender
Some lenders limit how much is left to repay on your mortgage on your current home*
*Having an existing mortgage secured against your home doesn’t necessarily prevent you from releasing equity, so long as you clear it with the funds you release or other savings
Is releasing equity the right option for you?
Equity release can be helpful for many people, but it's important that you weigh up all of the risks and benefits to see whether this is the right move for you.
Some common equity release examples are:
Clearing an existing mortgage - whether repaying the capital on an interest-only mortgage or the remaining balance on a repayment mortgage (be wary of early repayment charges that may apply to the latter)
Gifting an early inheritance - some parents and grandparents like to see their loved ones enjoy their inheritance whilst they are still around
Making home improvements - this could be adding that library you’ve always wanted or adaptations you might need in your older years
Increasing disposable income - if your pension payments don’t afford you the lifestyle you’re accustomed to or had hoped to have in your later years, this can be a good way to top them up
Funding big purchases - those dream ‘one day’ purchases like holidays, cars or holiday homes
That said, equity release is a very costly way to borrow money and not without its risks, so it’s important to fully understand every aspect of your chosen plan before you commit to anything.
Equity release brokers have specialist training and knowledge, so make sure you get the right level of advice for your needs and make sure your broker is a member of the equity release council.
Alternatives to equity release
Equity release is not suited to everyone, it can be an expensive and restrictive commitment, so it’s important to consider all alternative options that may also be available to you before making a commitment to release equity.
This could include:
Downsizing to a cheaper property
Remortgaging your home – many lenders are now happy to lend to older and retired borrowers
Taking out a retirement interest-only mortgage (RIO) – this is similar to a lifetime mortgage, but you have to repay the interest each month. They're available for applicants 55 or over and the loan is only repaid when you die or move into long-term care
Renting out a room in your home – you can earn up to £7,500 a year tax-free
Making the most of existing savings and investments
The most important consideration of equity release is that you as a customer have a full enough understanding of the products available to make a confident and informed choice. Always seek expert advice.”Kellie Steed, Mortgage Content Writer
Equity release FAQs
What is the Equity Release Council?
The Equity Release Council (ERC) is the voluntary trade body that oversees the equity release sector and is regulated by the Financial Conduct Authority (FCA). It ensures that its members uphold certain values and standards of conduct through several product safeguards aimed at protecting customers.
You can download their consumer guide for more details.
What happens if I owe more than my house is worth when I die?
The ‘no negative equity guarantee’ means that you will never have to repay more than the value of your home. This means that your beneficiaries will not need to repay anything from your estate or their own pockets if the sale of your home does not cover your entire debt.
Essentially if you do owe more than the value of your home then the lender takes a loss - which is their risk to consider.
What should I worry about when releasing equity?
The best way to limit any worries that you may have about taking out equity release is to choose a ERC (Equity Release Council) certified expert adviser and ensure you thoroughly understand all of the risks involved with equity release. The main things to consider will vary slightly depending on which type you opt for, but in both cases you will need to consider:
Impact on inheritance
If you’re hoping to leave an inheritance behind for loved ones, it’s important to understand the impact equity release will have on this. Some plans allow you to 'ring fence' some of your home’s value for inheritance purposes. This is known as the ‘inheritance protection guarantee’ and might be a valuable option if leaving an inheritance is important to you.
Whether any means tested benefits you have would be affected
If you receive means-tested benefits from the government, taking a large lump sum payment of any kind can affect your eligibility to them, as you may end up above the savings threshold. Therefore taking a large lump sum during equity release won't be beneficial to everyone.
It may be possible to prevent this by taking a smaller upfront lump sum and split the remaining loan into regular payments. Speak to an equity release expert about your benefits if you are concerned about this.
Whether you intend to stay in your home forever
Especially with home reversion as you won't be able to do so unless you buy the property back from the lender at a much higher cost than they paid you for it. With a lifetime mortgage you should be able to move, so long as your new property meets the lender's criteria - however if you're moving to downsize, keep in mind that it may not.
Last updated: 31 July 2023