Equity release
Learn what equity release is, how it works, and whether its a suitable option for you

Table of Contents
- Equity release
- What do people use equity release for?
- Types of equity release schemes
- What equity release scheme would suit me?
- Is there interest charged on equity released?
- Equity release vs. remortgaging
- Does equity release reduce inheritance tax?
- Equity release with a mortgage
- FAQs
Equity release
Equity release has gained popularity as a financial solution for individuals who want to access the value tied up in their homes. It provides an opportunity to release cash from your property, allowing you to enjoy your retirement or meet specific financial goals.
What is equity release?
Equity release is a financial arrangement that allows homeowners aged 55 or over to unlock the equity in their property. Equity refers to the value of your home minus any outstanding mortgage or other loans secured against it.
By opting for equity release, you can receive a tax-free lump sum or regular payments, depending on your chosen scheme.
How does equity release work?
Equity release works by providing you with a loan or cash lump sum secured against the value of your property.
What is a home reversion plan?
A home reversion plan involves selling a percentage of your property to an equity release provider in exchange for a lump sum or regular income. You continue to live in your home as a tenant without paying rent, but the provider will own the percentage you sold. The proceeds are divided according to the ownership percentages when your property is eventually sold.
What is a lifetime mortgage?
A lifetime mortgage is a popular type of equity release scheme. It allows you to borrow against the value of your property while retaining full ownership. The loan, including any interest accrued, is repaid when you pass away or move into long-term care. Lifetime mortgages offer various options, such as a lump sum, regular income, or a combination of both.
Who offers equity release?
Several equity release providers operate in the market. These providers are authorised and regulated by the Financial Conduct Authority (FCA) to ensure consumer protection.
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What do people use equity release for?
People use equity release for a variety of reasons. Some common purposes include:
- Supplementing retirement income
- Paying off existing debts or mortgages
- Home improvements or modifications for ageing in place
- Funding healthcare or long-term care expenses
- Gifting money to loved ones
- Going on vacations or fulfilling lifelong dreams
Types of equity release schemes
Equity release schemes can be tailored to your specific needs. The two main types, as mentioned earlier, are home reversion plans and lifetime mortgages.
Home reversion plans involve selling all of or a portion of your property in exchange for a lump sum or a set of regular payments. You’ll still retain the right to stay in the property until you pass away or move into long-term care, but you will still be responsible for the property’s maintenance and insurance.
Alternatively, lifetime mortgages allow you to take a mortgage out on your property whilst retaining full ownership. You have the choice to make repayments or let the interest build.
You do have further options available with lifetime mortgages, including:
- Drawdown lifetime mortgages: Allows you to release equity in stages, offering flexibility and potentially reducing the interest accrued.
- Interest-only lifetime mortgages: This lets you make regular interest payments, reducing the overall loan amount.
- Enhanced lifetime mortgages: Factors in your health and lifestyle, potentially increasing the amount you can release.
- Lump sum lifetime mortgages: Provides a one-time lump sum payment at the start of the agreement.
What equity release scheme would suit me?
To find an equity release scheme that suits you, you must first establish our financial goals. If you know specifically what you want, you can choose the option that caters to you the most.
Home reversion
Home reversion may be suited to you if you prioritise financial certainty, as well as the following:
- Immediate cash flow: A home reversion plan will offer an upfront payment, so if you’re looking to secure funds quickly, this option could allow you to do so.
- Risk aversion: If you’re someone who isn’t comfortable with the potential fluctuation and uncertainty of property values, home reversion eliminates this. You’re selling a fixed portion of your property at an agreed value, so you don’t need to worry about any market changes.
- Estate planning: If you are hoping to distribute your assets upon your passing, home reversion can be useful. Because you sell a share of your property, this tax-free cash that you receive can be spent or gifted, so any inheritance tax liabilities are reduced since it’s considered to be outside of your estate.
Lifetime mortgage
On the other hand, if you’re looking for a wider variation of options, perhaps with an increased level of flexibility, a lifetime mortgage may be ideal for you, with other features such as:
- Reduced inheritance: If leaving assets to loved ones is not a priority of yours, a lifetime mortgage will suit you, as it reduces the amount you leave behind.
- Retaining ownership: A lifetime mortgage gives you access to your property’s value whilst allowing you to continue living there.
- Choice: You can either borrow a lump sum when you first take out the lifetime mortgage, or you can have a smaller loan with the option of drawdown which would suit you if taking small amounts to top up your income is something you want to do.
- Management of interest: Some lifetime mortgages allow you to make interest payments so you can slow the growth of the loan over time and maintain control over the impact on your estate.
Is equity release a safe option?
Equity release is regulated by the Financial Conduct Authority (FCA) to protect consumers’ interests. The industry has introduced various safeguards, such as the no negative equity guarantee, which ensures that you or your estate will never owe more than the value of your property. However, it is essential to understand the potential risks and seek independent legal and financial advice before committing to an equity release scheme.
What are the risks and costs of equity release?
There are four main risks and costs of equity release; our table below illustrates these.
Risks | Costs |
---|---|
Reduced inheritance: Equity release could reduce the value of your estate, potentially leaving less for your loved ones. | Interest: Interest on equity release schemes accrues over time and can significantly increase the total amount owed. |
Impact on benefits: Receiving a lump sum payment or regular income from equity release could impact means-tested benefits. | Fees: Equity release schemes often have various fees associated with them, such as arrangement fees, valuation fees, and legal fees. |
Negative equity: If your property decreases in value, you or your estate may end up owing more than the property is worth. Many equity release products come with compound interest, which can reduce the remaining equity in your property over time. | Repayment penalties: Early repayment of equity release schemes may result in penalties or charges. |
Loss of control: If you sell all or a portion of your property through a home reversion plan, you lose control of that portion of your property. | Survey costs: Some equity release schemes require a surveyor’s report, which can be an additional cost. |
What are the alternatives?
Before considering equity release, it is worth exploring alternative options. These may include:
- Downsizing to a smaller property: You may find it more suitable to move out of your current home and into a smaller, more affordable property. Selling your current home can provide you with the funds you need to purchase a smaller one and potentially reduce property-related expenses as a result.
- Accessing other savings or investments: If you have money in stocks or bonds, you may want to think about accessing these before you go ahead with equity release, so you can utilise the assets you already have whilst retaining the ownership of your property.
- Seeking financial assistance from family members: Your family may be able to provide you with a loan or a gift to help you out. This can be more casual and flexible, but you should make sure that all parties have a clear understanding of the agreement you’re arranging.
- Remortgaging: Remortgaging means that you move your current mortgage to another lender so that a new mortgage will replace your old one. This can give you access to additional funds, but the interest rates and repayment options of the new mortgage will dictate the affordability of this.
- Personal loans: These loans typically have a higher interest rate, but they can give you access to a lump sum which you can utilise for a range of purposes. You should always understand the terms of a loan before you agree to take it.
Each option has its pros and cons, and it’s crucial to evaluate them based on your individual circumstances and financial goals.
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Is there interest charged on equity released?
Yes, equity release schemes typically charge interest on the amount released. The interest can be either fixed or variable, and it accrues over time until the loan is repaid.
It is important to consider the long-term impact of the interest charges and discuss the options with your financial adviser.
Will equity release affect my benefits?
Equity release could potentially affect means-tested benefits, as it increases the level of cash you have. Discussing this with a financial adviser who can evaluate your situation and provide guidance on the potential impact on your benefits is essential. They can help you explore ways to mitigate any adverse effects.
Does equity release affect your credit score?
Equity release is not dependent on your credit score. As the loan is secured against your property, the provider is primarily concerned with the value and condition of the property.
Therefore, equity release is generally accessible to individuals with varying credit histories.
Equity release and death
In the event of your death, the outstanding loan, including any interest accrued, will need to be repaid from the proceeds of selling your property. If you have a partner or spouse who is a joint homeowner, they can continue to live in the property until their death or move into long-term care.
It is advisable to discuss these scenarios with your loved ones and seek legal advice to ensure everyone’s interests are protected.
Equity release vs. remortgaging
Equity release and remortgaging are different approaches to accessing the value in your property. Remortgaging involves switching to a new mortgage with different terms, potentially releasing some equity in the process.
Equity release, on the other hand, provides a separate financial product specifically designed for homeowners aged 55 or over.
Each option has its advantages and considerations, so it’s crucial to seek advice to determine the most suitable choice for your circumstances.
Equity release to buy a holiday home
Using equity release to buy a holiday home is a possibility, but it’s important to understand the implications. The funds released from your property can be used for any purpose, including purchasing a holiday home.
However, evaluating the ongoing costs, maintenance, and potential impact on your estate and inheritance is crucial. Seek professional advice to understand the financial implications before proceeding.
Equity release age limits
You must be at least 55 years old to be eligible for equity release. Some providers may have higher age limits, typically between 60 and 65. The older you are, the higher the percentage of equity you may be able to release. Always check the specific age requirements of the equity release providers you are considering.
Equity release and deprivation of assets
Deprivation of assets refers to the intentional reduction of your assets to qualify for means-tested benefits. If you release equity from your property and later apply for means-tested benefits, the local authority may assess whether you intentionally deprived yourself of assets.
It is important to seek financial advice and ensure that equity release is appropriate for your situation.
Can equity release be paid off early?
Yes, equity release schemes can often be paid off early, subject to the terms and conditions of your specific plan. However, early repayment may incur penalties or charges, which is why it’s crucial to consider your long-term financial plans and discuss them with your financial adviser.
Is equity release regulated by the FCA?
Yes, equity release is regulated by the Financial Conduct Authority (FCA). The FCA sets rules and guidelines to ensure consumer protection and fair treatment.
When considering equity release, choosing an FCA-regulated provider and seeking advice from an independent financial adviser is essential.
Does equity release reduce inheritance tax?
Equity release does not directly reduce inheritance tax, but it may impact the overall value of your estate. The amount released from your property will be deducted from the value of your estate, potentially reducing the inheritance tax liability.
Can I get equity release on a leasehold property?
Yes, it is possible to get equity release on a leasehold property, but some restrictions may apply. The lease should typically have a sufficient remaining term, usually around 75 years or more.
Additionally, the leasehold property should meet the eligibility criteria set by equity release providers. It’s advisable to discuss the specific requirements and conditions with your chosen provider.
Equity release with a mortgage
If you still have an outstanding mortgage on your property, it is possible to consider equity release. However, the existing mortgage will need to be repaid first using the funds released through equity release. The remaining amount can then be used according to your financial needs and goals.
It’s important to consult with your mortgage provider and seek independent financial advice to understand the implications and available options.
In conclusion, equity release can be a viable financial solution for homeowners aged 55 or over who want to access the value tied up in their properties. It offers flexibility and options to meet various financial goals.
However, it is crucial to carefully consider the potential risks, seek independent advice, and choose a reputable equity release provider. Doing so lets you make an informed decision that aligns with your financial objectives and ensures a comfortable retirement.
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FAQs
What is the catch of equity release?
If you know all the information, then there is no ‘catch’ per say, but the main thing you should be completely clear on is that the money you release will not just disappear into your pocket, never to be mentioned again. The money you release from your property must be repaid once you pass away or move into long-term care.
Can I sell my house if I have an equity release?
Yes, you can sell your house if you have equity release but it must comply with the lenders terms and conditions and there may be some penalties. So, for example, if you have a lifetime mortgage equity release product, the money you make from selling your property must meet the terms and conditions set out by the lender. Early payment charges are likely to apply so just be aware of this.
Who owns the property after equity release?
Property ownership will depend on the type of equity release product you have chosen. If you opted for a lifetime mortgage, you still retain ownership of your home when you release cash from it. However, with a home reversion plan, your property will be co-owned by the provider who you have taken the plan out with – it’s essentially like physically selling a part of your property so you do not have full ownership.

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