Equity release

Many older people consider releasing equity in their property in order to improve their financial situation.

What is equity release?

Equity release can help homeowners over the age of 55 to unlock cash from their home, in either a lump sum or in smaller amounts over time, or both. You can use the cash released for anything that you wish. You’ll retain ownership of your home, and you can stay living in it for as long as you like. The loan is repaid from the sale of the property when you die or move into long term care.

This quick guide helps to identify the various options available and important things to consider before making such an arrangement.

Note: Always seek Independent Financial Advice. Equity release is not right for everyone and may affect your entitlement to state benefits and will reduce the value of your estate.

Types of equity release

There are two main types of Equity Release scheme:

Lifetimes mortgages: You borrow a lump sum secured on the home. The outstanding mortgage is repaid from the sale of the home when you move out (eg. to a care home) or when you die. You remain the owner of your home (and fully responsible for its upkeep).

A drawdown lifetime mortgage lets you take cash from your home as and when you like. You’ll get an initial lump sum followed by an approved cash facility that you can ‘draw’ from as and when you need it. You only pay interest on the cash that you have taken as the interest grows at a slower pace.

Home reversion: This involves selling your home (or part of it) to a company for a set fraction of its market value. In return you usually continue to live in the home, normally rent free, for as long as you wish. In most cases you remain responsible for the cost of maintaining the home.

What is housing equity?

Your ‘housing equity’ is the market value of the home you own minus any mortgage or debt held against it.

For example, if you have had your home valued at £200,000 and you still owe £50,000 on your mortgage (with no other charges on the property), your housing equity is currently £150,000.

Common eligibility criteria and conditions

There are usually certain conditions that you must meet in order to be eligible for an equity release scheme. They vary between providers but some of the most common are:  

  • You must usually be 55, but some schemes may only be for the over 60s  
  • A maximum amount you can borrow or sell, typically 18% – 50% of the property value  You must own your home and it must be of at least £70,000 in value
  • You will be required to pay off any outstanding mortgage in full either from the equity you release, or from other funds  
  • You have to borrow a minimum amount of money, typically £10,000  

There may be restrictions on the type and condition of property acceptable to lenders.

To find out more about the Equity Release, read our article ‘Is equity release safe?‘

How much can I release?

This depends primarily on your age and the value of your home. Use OneFamily’s free and simple Equity Release Calculator to get an idea of how much you can borrow.

Read more on ‘How much equity can I release from my home?’

What can equity release be used for?

The equity release market has grown significantly over the past 20 years and can be a valuable option for unlocking capital, such as:  

Questions to ask before taking out Equity Release

The financial consequences of pursuing equity release must be carefully considered. Some of the questions you might have are:

How long does it take to release equity?

  • A lifetime mortgage application usually takes between 5 and 8 weeks in total. The process involves a considerable amount of legal work and its duration will depend on how efficient and experienced your solicitor is. Find out more about the key steps involved here  

Is equity release safe?

  • Financial advisers are regulated by the Financial Conduct Authority (FCA). They impose strict rules on advisers who recommend these products and the companies that provide them. Read more about how Equity Release is regulated

What are the pros and cons of Equity Release?

  • Considering Equity Release? Is it the right option for your circumstances? Read about the advantages and drawbacks on Equity Release here

How will it affect the amount of money or property you can leave in your will?

  • The balance of the loan is settled through the sale of your property when you die or move into long term care. If your property is worth £250,000, and the total owed on your loan is £50,000, the net contribution of your property to your full estate will be £200,000 after your lender is repaid. The remaining value of your estate will then be taken into account when calculating what, if any inheritance tax is payable. Read more…

How much does it actually cost to take Equity Release?

  • You’ll need to understand the costs involved when taking out Equity Release. This includes interest rates, set-up costs and arrangement fees. Read about the total costs of Equity Release

How much equity can I release from my home?

  • If you’re a homeowner aged 55 or over you may be able to release between 30% and 59% of the value of your home using equity release. Find out more

Do you already have to own your property to be eligible to get a lifetime mortgage?

  • A lifetime mortgage can be used to purchase a property to live in. This means the equity you already have from any property you have sold previously. Alternatively, any other existing savings can be the deposit, with a lifetime mortgage making up the rest of the property purchase price. This can help you to buy a more expensive home than you could have afforded with just your sale proceeds or savings.

And here are some more questions to ask before taking out equity release ….

  • How will inflation affect the value of any fixed income you receive?
  • Could you end up owing more than your property is worth?
  • What happens if you need long term care? How will borrowing a lump sum or increasing your income affect your entitlement to means tested benefits?
  • How will borrowing a lump sum or increasing your income affect your tax liability?
  • How will having an outstanding debt against your property affect your future housing options?
  • What will happen to anyone living with you when you die or if you move? – Will they lose their home?
  • What happens if you die very soon after taking Equity Release – particularly a Home Reversion Plan?

Find out more and get answers to your questions about equity release on OneFamily’s FAQ page. You can always talk to an independent financial to adviser who can answer all your questions about Equity Release.

Seek Independent Financial Advice

We would strongly advise that you or your family member seeks Independent Financial Advice before committing to an Equity Release product. Financial advisers are regulated by the Financial Conduct Authority (FCA). Your financial adviser should be a member of the Equity Release Council (ERC) and adhere to their strict code of conduct. OneFamily Advice is a member of the ERC and their advisers are salaried rather than working on commission, so only have your best interest at heart.

If you do not already have an IFA then you may wish to find one. You will find useful information to help you in your search in the ‘How to find a financial adviser’ article.

Interested in finding out more about Equity Release? Watch a short two minute video about Equity Release here. And/or download OneFamily’s simple guide about Lifetime Mortgages.

Further Reading

Housing and care options for older people

Factsheet 24: Living longer - remaining independent

Factsheet 29: Equity Release