Equity release explained – 2023

Over 55 and thinking about releasing equity from your home but not sure of the next step - our guides are designed to help. Covering all aspects of equity release, the information we provide is in 3 bite sized stages:

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What is it equity release

Equity release is a way you can access the money tied up in your home without having to move. The cash is tax-free, yours to use how you choose and can be paid in a lump sum or instalments.

A 1 minute video explaining how equity release works

What is equity release?

An equity release mortgage is designed to last for life. You are not required to make any monthly repayments, still have the freedom to move home and you can release equity if you have an existing mortgage on your property. You just need to repay the outstanding debt with the money you release.

How does equity release work?

There are two types of equity release to choose from: the more popular lifetime mortgage and the home reversion plan. Here’s a close look at how each plan works:

Lifetime mortgage – with this option, a loan is secured against your property which is repaid from the sale of your home when you die or move into permanent care. Unless you choose to, there are no monthly repayments to make and you continue to own 100 percent of your property value. This means you will benefit from any increase in property prices.

The interest charged on a lifetime mortgage is compounded, so you pay interest on the interest already accrued. This means the loan will grow at a faster rate compared to a standard mortgage. However, the Equity Release Council’s ‘no negative equity guarantee’ ensures that you will never owe more than the value of your home.

Home reversion plan – with this option you agree to sell all, or a percentage of your property. There is no interest charged however the lender will typically pay you less than the market value for your home.

You can remain living in your home rent free for life or until you move into permanent care, but you will no longer be the sole owner. This means you will only benefit from any increase in house prices on the percentage of property you own.

In 2023 the average UK equity release customer borrowed around £100,000 or 25% of their property value but the amount of equity you can release will depend on your own personal circumstances including your age and the value of your property.

An equity release mortgage will impact the value of your estate and could affect any benefits your currently receive, so it’s not the right choice for everyone. Before going ahead you should seek professional advice, consider the pros and cons and discuss the alternatives.

It is also important to talk to family to ensure they are happy with whatever you decide.

What can I use the money for?

The money you release from your property can be used however you wish. See how other homeowners used their cash sum.

How much does it cost?

These include fees for setting up the loan and in the case of a lifetime mortgage, the interest that accumulates over time.

Is equity release a good idea?

It could be worth considering but it is important to consider the impact before making your decision.

How can I use equity release?

When you release equity from your home, you are free to use the money however you choose. The only stipulation is if you have an existing mortgage, as the existing loan will need to be repaid with the money you release.

Currently the main reasons homeowners choose equity release is to pay off an existing mortgage or to make home improvements.

However, other reasons people choose equity release include:

  • helping family financially
  • clearing loans and credit cards
  • buying a car
  • paying for a luxury holiday
  • increasing retirement income

Please continue to read our guide or if you have any questions please call us on 0800 133 7656 or request a call back.

How much does equity release cost

The cost of arranging an equity release mortgage is typically between £2,000 to £3,000 but this will depend on the amount you release, the lender and the product you choose.

Initial set up costs typically include fees for professional advice, the lenders arrangement fees, valuation fees and your solicitor’s charges.

Some companies offer deals including cash back offers, free advice and free valuation, so comparing equity release plans can help you find the best deal and the right plan for you.

Please continue to read our guide or if you have any questions please call us on 0800 133 7656 or request a call back.

Is releasing equity from my home a good idea?

If you are in need of a cash injection, perhaps to pay off a mortgage or help family get on the housing ladder, then equity release could be a good idea for you. Regulated by the Financial Conduct Authority and over seen by the Equity Release Council, rules are in place to ensure plans are safe and customers are protected.

It is a major financial decision though and not right for everyone given the pros and cons. For example, it will negatively impact any inheritance you intend to leave for family as the debt is repaid from the sale of your property once you die or move into care.

In addition, the compound interest charged on these types of mortgages means the amount you owe will grow at a much faster rate compared to standard residential mortgages.

Reviewing all of the alternatives to equity release is important to understand if there is a better solution to providing the money you need.

Please continue to read our guide or if you have any questions please call us on 0800 133 7656 or request a call back.

Considering your options

Do I qualify for equity release?

Your eligibility for equity release doesn’t depend on your income as you are not required to make monthly repayments. However there are certain requirements you must meet in order to apply.

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Am I eligible for equity release?

Your eligibility for equity release will depend on several factors. This will include your age and the value of your property but ultimately the requirements will be dictated by your providers lending criteria.

Typically to qualify for a lifetime mortgage the following should apply:

  • You or the youngest home owner must be at least 55 years of age.
  • Your property must be your main residence and located in the UK or Northern Ireland
  • The value of your property should be at least £70,000
  • The property must be habitable and in good state of repair

The lending criteria for a home reversion plan is similar to an equity release mortgage however the minimum age is 65 years of age.

To understand more on how to qualify, read our guide on what else can affect your eligibility for equity release?

Ashley Shepherd - Author's Profile Picture
Read more articles from our expert author Ashley Shepherd
Updated 2nd January 2024

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Getting advice and asking for help

Ready to talk to someone about releasing equity from your home? The right adviser will help you decide if equity release is the most suitable option for you and find you the best deals.

How long does equity release take?

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Questions to ask your adviser.

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Where do I go for equity release advice?

Equity release is a Financial Conduct Authority (FCA) ‘advised product’ which means that all companies offering this service must provide advice. This can either be via the lender themselves, an Independent Financial Adviser (IFA) or an equity release broker.

The advice they provide should answer any questions you may have and include a review of your personal circumstances, the benefits and risks and any alternatives available to you. As Martin Lewis always says, it’s important to consider all of your options including downsizing first before making any decisions.

Anyone advising on equity release mortgages must be qualified to do so. Choosing a specialist adviser who is a member of the Equity Release Council (ERC) means you will go through a structured financial advisory process, however be aware that the adviser may only provide advice on the products they offer.

A qualified IFA or specialist mortgage broker that has access to more than one lender means you can compare equity release plans across a range of providers, not just individual companies. This will give you a much broader view of the best and most suitable company for you.

It’s important to remember that by choosing a lender who is a member of the EHC, you are protected by their rules and safeguards. Therefore avoid equity release companies who don’t have their seal of approval.

To help you understand more about equity release and answer any questions you may have, we work in association with Age Partnership. They offer initial free no obligation help and advice and have agreed exclusive plans with leading lenders that you may not be able to get elsewhere.

Alternatively you can find details for other specialist brokers, IFAs and providers on the Equity Release Council’s ‘find a member’ website.

If you have any questions and or require advice please call us on 0800 133 7656 or request a call back – there is no obligation to proceed and there are no costs for this advice*.

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Our aim is to provide you with clear and accurate information to help you research your chosen financial products and services. The material on this site is for general information only and does not constitute any form of advice or recommendation.

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