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Equity release is regulated by the Financial Conduct Authority

We compare Equity Release Council approved plans

What is equity release?

Equity release is a way to get some of the cash (equity) out of your property without having to sell up and move.

Equity release differs to a traditional mortgage, as it’s only available to homeowners aged 55-95 and you also don’t have to make any monthly repayments if you choose not to.

Equity release plans have no set term, so the outstanding amount is paid from the proceeds of the sale of your property when the plan ends; this is usually when you and anyone else named on the plan pass away or go into long-term care. The tax-free cash you release can be used however you want and it’s become a popular way for people to boost their finances in and around retirement.
 
Equity is simply the portion of the home you truly own. Take its market value and subtract any mortgage or secured loans on it and you have the equity. This amount goes up or down as the value of the property increases or decreases.

What can you use equity release for?

People take out equity release for many reasons. For some, it’s a simple matter of using the tax free cash to clear existing debts. Others use it to fund the things they’ve always wanted and now have the time to do – holidays of a lifetime or new, exciting experiences. Whatever the reason, you should always think carefully about securing a loan against your home.
To pay off an existing mortgage
Many homeowners have built up significant equity with house prices rising over the years. Paying off a mortgage frees you from having to make monthly repayments and can boost your retirement finances, giving you more cash to do the things you want to.
 
Equity release has also become a popular option for those with a maturing interest-only mortgage and no repayment strategy or chance of extending their mortgage to anything but a capital repayment one with higher monthly repayments.
 
To fund home and garden improvements
Home improvements, whether for extra enjoyment or comfort and safety, also tops the list of reasons why more people are choosing to access some of the money from their homes.
 
To gift to loved ones
Equity release can enable you to provide financial support to your family, helping them to get a foot on the housing ladder, paying for a wedding, or contributing towards education costs. It’s a living inheritance that can be appreciated now.
 
Travel, large purchase and leisure
The cash you release from your home can be spent however you want to. For some that’s enjoying their retirement; going on cruises, escaping the British weather, or seeing places you’ve always dreamed of. Or use it to purchase something you’ve always wanted – a campervan or a new car.

How does equity release work?

There are two types of equity release – lifetime mortgages and home reversion products.

Lifetime mortgages

A lifetime mortgage, the most popular type of equity release product, is a loan secured against your home. It allows homeowners, aged 55-95, to access some of the cash locked into the value of their home, while still retaining full ownership.
 
There’s usually a fixed rate of interest on these loans, though variable rates are available also. With most plans there are also no monthly repayments unless you choose a plan where you can pay some, or all, of the interest each month.
 
The initial loan amount plus compound interest is usually repaid when the plan comes to its end. That’s when your home is sold after you or anyone else named on the plan pass away or move into long-term care.
 
More choice and increased flexibility
With a lifetime mortgage there are a wide range of additional plan features, all designed to give you greater flexibility and more control of your finances.
 
Stay where you love
As a lifetime mortgage means you’ll be able to stay in your home, improving it for a better quality of life or adding value for the future is often a popular choice.
 
Make the most of your retirement finances
With every lifetime mortgage, you’ll take an initial lump sum. The difference with a drawdown lifetime mortgage is that it’s more flexible. Your lender agrees an overall sum of money you can borrow – out of that you take an initial lump sum with the remaining cash held in reserve until you want or need it.
 
You only pay interest on the amount you release, so you can potentially reduce the cost of equity release by only taking as much as you need from your home at any one time.
 
Inheritance protection
Taking out a lifetime mortgage will reduce the amount of inheritance you can leave. However, some plans offer a Guaranteed Inheritance Feature allowing you to protect a percentage of your home’s future value for your loved ones.
 
All equity release plans that are approved by the Equity Release Council (ERC) also give you a no negative equity guarantee, meaning you will never owe more than the value of your home. This is one of the many safeguards put in place by the ERC.
 
Interest and voluntary repayment plans
You don’t have to make regular repayments on your lifetime mortgage, but there are plans that let you pay up to 100% of the monthly interest each month without any early repayment charges. With interest payment plans, you pay the full interest amount for the life of your plan.
 
Voluntary repayment plans provide more flexibility to control the balance, allowing you to make ad hoc payments of up to a certain percentage of the original loan amount each year.
 
Downsizing protection
You could be covered by downsizing protection, allowing you to repay your plan without an early repayment charge if you decide to move into a home outside your lender’s criteria. This is applicable after an initial five year period.
 
If you think you may want to move home after taking out an equity release plan, you should discuss this with your adviser.
 
Enhanced plans
You may have the option of borrowing a higher amount or benefitting from lower interest rates depending on your health and lifestyle. Common conditions such as type 2 diabetes, high blood pressure and heart disease, as well as lifestyle choices like smoking, could make you eligible for an enhanced plan.
 

Home Reversion

With a home reversion plan, you sell all or part of your home usually at less than the market value to the reversion company in return for a tax-free cash lump sum. You need to be 65 or over in order to qualify for this plan.
 
When your plan comes to an end and your home is sold, normally when you or anyone else named on the plan pass away or move into long-term care, the reversion company get their share of the proceeds, leaving the rest to go to you or your beneficiaries. If you sold 100% of your home, all the proceeds from the sale of your house would go to the reversion company.
 
Even though you will no longer legally own your house, you will be granted a lifetime lease to remain there rent free for the rest of your life.
 
Home reversion plans can be less flexible than lifetime mortgages. If your circumstances change and you needed to end the plan early, you’d need to buy back the share you sold at full market value – often this can be a lot more than you sold it for.
 
Home reversion plans are fully regulated by the Financial Conduct Authority. Like all equity release products, it’s wise to choose a provider that’s also a member of the Equity Release Council for the added safeguards they ensure.

How much does equity release cost?

With a lifetime mortgage, equity release is usually only repaid when you or anyone else named on the plan pass away or move into long-term care. As there is no fixed term, it’s impossible to predict exactly how much the loan amount plus compound interest will come to at the end. This is why it’s important you make sure your lifetime mortgage plan is approved by the ERC and has a no negative equity guarantee, so you’ll never owe more than the value of the property.
Initial charges
There may be some charges when it comes to setting up your plan. You will also have to pay a solicitor for carrying out conveyancing work and maybe a surveyor to value your property. Often depending on the provider, your solicitor fees can be added to your loan or some will offer cashback deals to help.
 
You’ll need to get advice from a qualified equity release adviser before proceeding. The initial consultation is usually free and if you decide to proceed and complete an application, any fees charged are only payable once your plan is completed (apart from your valuation fee which is paid upfront).
 
Compound interest
With a lifetime mortgage, the interest on your loan “rolls up” and compounds each month or every year. In the first month or year, your interest is simply added to the loan. The next month or year, the interest will be compounded, meaning it will be calculated on the sum of your original loan plus the interest added the previous month or year and so on.
 
There are many different plans with varying features and interest rates, which will affect the cost, so it’s important to get advice on the right, most cost-effective one for you.
 
The table below shows an example of compound interest where the original loan is for £50,000 and the interest rate is 4.75% AER. This shows the first 5 years only as an example, though the loan will run until you or anyone else named on the plan pass away or move into long-term care.
 
Year Loan Interest (at 4.75%) Total owed
 
1
 
£50,000
 
 
£2,375
 
£52,375
 
2
 
 
£52,375
 
£2,488
 
£54,863
 
3
 
 
£54,863
 
£2,606
 
£57,469
 
4
 
 
£57,469
 
£2,730
 
£60,199
 
5
 
 
£60,199
 
£2,859
 
£63,058

Is equity release safe?

Yes. Equity release is fully regulated by the Financial Conduct Authority (FCA). This is the UK’s financial regulatory body and ensures protection for customers.
In addition, the Equity Release Council (ERC) provides extra safeguards. Plans approved by the council ensure:
 
  • A no negative equity guarantee – you can never owe more than the value of your property
  • The right to remain in your property for life or until you or anyone else named on the plan need to move into long-term care
  • The right to move to another property, subject to the property being acceptable to your lender’s criteria
 
All members of the ERC must adhere to the Council’s Statement of Principles, designed to provide safeguards for you, the customer.

What are the advantages and disadvantages of equity release?

Equity release isn’t a one-size fits all solution. To fully understand whether it’s right for you, it’s best to speak to a qualified independent equity release adviser. They can review your circumstances and discuss any potential alternatives at an initial appointment to understand what’s important to you. After researching the whole of the market, your adviser will give you a personalised recommendation.
Advantages of equity release
  • With a lifetime mortgage, you can release a one-off tax-free lump sum or, following an initial lump sum, you can draw down more cash in stages to spend however you like
  • You can pay off any existing mortgage or debts, therefore reducing your outgoings
  • You won’t have to make any monthly payments if you don’t want to
  • You can continue to live in and keep ownership of your home with a lifetime mortgage
  • You’ll never owe more than the value of your home
  • You could continue to benefit from house price increases (not with 100% home reversion plans)
Disadvantages of equity release
  • Equity release will reduce the value of your estate
  • It could affect your entitlement to means-tested benefits now or later on
  • With a lifetime mortgage, the amount to be repaid can grow quickly because of the effect of compound interest
  • A lifetime mortgage is designed to last for the rest of your life, so if you decide to pay it off early you could have to pay an early repayment charge, which could be considerable

How much can you borrow?

Our free, no obligation equity release calculator will give you results in seconds. Taking your age and the value of your property into account, it compares the whole of the market.
The results provided will show you the plans you may be eligible for, the amount you could release with different lenders, their current interest rate, and any benefits that come with the plan, such as cashback.
 
Although you can take out equity release if you still have a mortgage or any outstanding secured loans on the property, you must repay them and the cash you release can be used to do this.
 
You need to get independent advice before taking out equity release.

Next steps

Releasing cash from your home doesn’t have to be complicated.
 
Step 1: See how much equity you could release
Get a free, no obligation quote using our equity release calculator to see how much cash you could release from your home. It compares the whole of the market to find an equity release plan to suit you.
Step 2: Advice and recommendation
You need to book an initial appointment with an independent equity release adviser at a time that suits you. Following this, your adviser will look at all the products available on the market and provide you with a personalised product recommendation and suitability report based on your circumstances.
 
Step 3: Application
Once you’re satisfied the plan suits all your needs, your adviser will complete an application form and deal with all the supporting documentation needed. Your home will then undergo an independent, professional valuation at a time suitable to you. An offer based on this valuation will then be given to you by the plan provider.
 
Step 4: Completion
Once you accept the offer, legal paperwork is coordinated by your solicitor and it should take approximately 8 to 12 weeks to complete. You’re then free to enjoy your tax-free cash any way you wish.
 
Use our equity release calculator to find out immediately how much cash you could release from your home.
 
Ready to take the next step or need more information? Call our expert equity release advisers for a free, no-obligation initial appointment on 0800 188 4840 (lines open 9am-8pm Monday-Thursday, 9am-5.30pm Friday and 9am-5pm Saturday).

Is equity release right for you?

Before you decide to release equity, you should be absolutely sure it’s right for your circumstances. While you’ll have to get professional advice from a qualified adviser before taking out any equity release plan, it’s important to know:
  • Both your tax position and any entitlement that you have to state benefits could be affected by the decision to release equity from your home. Expert advisers will be able to determine what this effect will be to help you appreciate the full implications of equity release on your financial circumstances.
  • Equity release will reduce your estate’s value.
  • It's recommended that you consult with your family and allow them to become involved in the process with you. This could involve inviting your family to accompany you during any meetings with your adviser – a good opportunity for them to find out how equity release could affect them, and to allow them to support you throughout the process.
  • You should always consider the alternatives before deciding to go through with equity release.
  • You should always think carefully before securing any debt against your home.
  • If you take out a lifetime mortgage, it will accumulate compound interest – meaning that the total sum owed can grow quickly.

Equity release won’t always be the right decision and it’s important to know that there are choices out there. You should always consider the alternatives before deciding to go through with equity release, which could include:
 
Downsizing 
When you downsize, it’s often possible to buy a smaller and less expensive property without the need for a mortgage, and sometimes with extra cash to spare. No monthly mortgage payments will generally result in more money to spend on other expenses, whether that means essentials or luxuries. Of course, it also means that you have to leave your home and either relocate to another area or move into a smaller property.
 
Loans or traditional mortgages
If you think you’ll be able to make the monthly repayments, a loan or traditional mortgage can be an alternative option for raising funds. While it has traditionally been more difficult for people over the age of 50 to secure a mortgage, there are now more options available, with a number of lenders offering services targeted towards older borrowers.
 
Family/Friends
Depending on the relationship that you have with your family and friends, and their own financial situations, you may be able to get financial support from them. While it’s easy to avoid talking about what you might feel is a sensitive issue, your loved ones may be delighted to help once they realise that you’re struggling.
 
Savings or investments
If you have savings or investments that cover your financial needs, then these should be your first port of call. That said, it may depend on what you need the money for; some people prefer to keep a small amount of savings set aside for specific emergencies. You also may want to keep investments in place if they are providing a regular income.
 
There’s also the possibility of using both savings and equity release, as the money raised through an equity release plan could supplement the funds you already have from savings or investments.
 
Benefits
Many people are entitled to state benefits that they don’t know about and therefore don’t claim, even though in many cases they could be the difference between financial difficulty and comfort. There are resources on Citizens Advice or Gov.uk to help you determine how much you may be able to claim.