What is equity release?

What is equity release and how does it work?

Equity release is a way for homeowners aged 55 and over to access some of the tax-free funds from their home.

You could release some of the tax-free funds from your home in one of these three ways through an equity release plan.

• Lump sum lifetime mortgage: This is a loan secured against your home, giving you access to a one-off release of money while still living in and retaining ownership of your property.

• Drawdown lifetime mortgage: The same as a lump sum lifetime mortgage but instead of taking just one lump sum, you agree an overall sum of money and after an inital release. You can then request further release amounts in stages as and when needed. Interest is only payable on the amount of money that you've released.

• Home reversion: This involves you selling part or all of your property to a provider, in exchange for a tax-free lump sum of money. You can then continue living in your home rent free but you will no longer be the legal owner.

Who is eligible for equity release?

To qualify for equity release, you must meet a lender’s eligibility criteria. These are usually:

• You’re aged 55 or over

• You’re a homeowner and own property in the UK

• Your property is worth a minimum of £70,000

• You release a minimum amount of £10,000, subject to criteria

To give you a better understanding of each factor, let’s look at them in more detail.
 

Your age

It’s important to remember that it’s the youngest homeowner that must be aged 55 or over to qualify. The age of the youngest applicant is always the basis of the equity release enquiry. 
 

Your home’s location

Another factor will be the location of your home, as it must be located in the UK for you to qualify for equity release. There are only a handful of lenders who will consider lending to you if your property is in Northern Ireland. Check with your equity release adviser to understand if the location of your home would be acceptable.
 

The value of your home

The minimum property value any lender will accept is £70,000. Some lenders do also have a maximum value to protect themselves from risk. The condition of your home is also something providers will take into consideration. It will need to be in a good condition and maintained to a high standard. 
 

How much money you could borrow

The maximum amount of money you can borrow is based on the youngest homeowner, property value and in some cases your health and lifestyle choices. The older you or your partner are, the more money you could potentially borrow. Our advisers will recommend an appropriate loan amount that meets your current and future financial needs.

Want to know how much equity you could release? Use our free equity release calculator.

Remember, you’ll need to pay off your existing mortgage before you can proceed with equity release. If you need to do this, you can use the funds you release to pay off your existing mortgage, and the rest of the money will then come to you. 
 

How long does equity release take?

Depending on the type of equity release plan you have chosen, it typically takes between 10 and 12 weeks to receive the funds into your bank account*. If there are any complications along the way, it could take longer. However, your adviser will be on hand to talk you through the whole process.

* Timescales cannot be guaranteed however this is a typical time frame.
 

Can you pay off equity release early?

Equity release isn't designed to be repaid early and we do not recommend equity release as a short term lending option. However, you can repay your equity release plan early if you want to. Dependant upon the lender, the type of plan and when it started, early repayment charges may apply, so check with your lender before making a payment. If you plan on making early repayments we would not recommend equity release as a short term lending option. 

Some plans offer fixed early repayment charges, so you know your early repayment charge from the outset. Other plans offer gilt based early repayment charges meaning your early repayment charge will vary throughout the lifetime of your plan. This is because plans are usually repaid when you or the last remaining borrower either passes away or moves into long term residential care. It’s important to discuss these options with your adviser when setting up your equity release plan.