Equity Release

Equity release refers to a range of products letting you access the equity (cash) tied up in your home if you are aged over 55. This can often suit people who have a significant amount of equity, but don’t have enough money or income for their needs. By releasing equity in the form of a lifetime mortgage or home reversion plan, it enables the individual(s) to remain in their home and raise money for things like:

  • Generate a capital lump sum
  • Provide gifts to relatives
  • Holiday home purchase
  • Provide an additional income
  • Home improvements

Where equity release is a suitable solution and you take out a lifetime mortgage or home reversion plan, the money does not usually need to be paid back or the home sold until the last remaining borrower dies or moves into care, although this may not be the case, for example if you make repayments to preserve as much of the inheritable estate as possible.

When considering a lifetime mortgage, it’s useful to know:

  • The minimum age at which you can take out a lifetime mortgage. Usually it’s 55. We’re all living longer so the earlier you start the more it is likely to cost in the long run
  • The maximum percentage you can borrow. You can normally borrow up to 60% of the value of your property. How much can be released is dependent on your age and the value of your property.
  • You have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence and you abide by the terms and conditions of your contract. (Equity Release Council standard).
  • You have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan (Equity Release Council standard).
  • Whether you can pay none, some or all of the interest. If you can make repayments, the mortgage will be less costly.
  • Whether you can withdraw the equity you’re releasing in small amounts as and when you need it or whether you have to take it as one lump sum.

Lifetime mortgages

Most people who take out equity release use a Lifetime mortgage. Usually you don’t have to make any repayments while you’re alive, interest ‘rolls up’ (unpaid interest is added to the loan). This means the debt can increase quite quickly over a period of time. However, some lifetime mortgages do now offer you the option to pay all or some of the interest, and some let you pay off the interest and capital. In the same way ordinary mortgages vary from lender to lender, so do lifetime mortgages.

Home Reversion

A Home Reversion allows you sell some or all of your home to a home reversion provider. In return you’ll get a lump sum or regular payments. You’ll normally get between 20% and 60% of the market value of your home (or the part you sell). When considering a home reversion plan, you should check:

  • Whether or not you can release equity in several payments or in one lump sum.
  • The minimum age at which you can take out a home reversion plan. Some home reversion providers insist you’re at least 60 or 65 before you can apply.
  • The percentage of the market value you will receive. This will increase the older you are when you take out the plan but might vary from provider to provider.
  • You have the right to remain in your property for life or until you need to move to long-term care, provided the property remains your main residence and you abide by the terms and conditions of your contract. (Equity Release Council standard).
  • You have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan (Equity Release Council standard).
  • What level of maintenance you’ll be expected to carry out and how often your property will be inspected (this could be every few years).

Is releasing equity the right option for you?

Whether equity release is the right option for you depends on your circumstances such as:

  • Your age
  • Your income
  • How much money you want to release
  • Your plans for the future.

When releasing equity, it’s tempting to focus on the immediate boost you will get from the money you unlock, but you need to look at how it will affect your future choices and financial situation in later life.

Don’t worry as we can help you understand all the features and drawbacks so you can make a fully informed decision.

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It is advised that customers seek independent legal advice before entering into a legally binding equity release contract.

EQUITY RELEASE MAY REQUIRE A LIFETIME MORTGAGE OR HOME REVERSION PLAN. TO UNDERSTAND THE FEATURES AND RISKS, ASK FOR A PERSONALISED ILLUSTRATION.