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How does Equity Release work? 

In later years there are many reasons why a homeowner might want to release a lump sum from their property.

Equity Release mortgages allow those over the age of 55 to get a lump sum without having to sell and move house.

There are no rules about how your money should be spent, meaning that the lump sum can be used for anything. So, if you want to consolidate debt, help a family member, or book that dream holiday, Equity Release could be for you.

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Author: Carl Shave - CEO and co-founder
Last updated: 21 Dec 2024

How to qualify for Equity Release

There’s a range of considerations when looking to obtain an Equity Release mortgage. To make it a little more challenging, every lender will have their own specific criteria.

However, do not worry, you’ll typically need to meet the following criteria:

  • You live in and own the property you wish to release equity from. It must also be your main residence, meaning you need to be living there 6 months out of the year.
  • Have reached the age of 55. If you have a partner they will also need to be over 55.
  • Your property must be worth at least £70,000 and in a ‘reasonable condition.’

If you meet these requirements, your chance of success will increase.

An introduction to Equity Release Mortgages

Equity Release topics

Equity Release can be complicated, but it does not have to be - you can read more about your options here.

Mortgages Over 55

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The Application Process

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Cost of Equity Release

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Lifetime Mortgages

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Useful Information

What to consider with Equity Release?

As with any financial product, Equity Release has its drawbacks and isn’t appropriate for everyone.

Before committing to a product, it’s best to be aware of all the details surrounding it.

  • Compared to a standard mortgage, Equity Release can be seen as less cost effective. This is due to the fact that Equity Release interest rates are higher than those on a standard mortgage.
  • Selling your home through home reversion  will often lead to you receiving less money for it.
  • If you release too much equity early on, it’s possible you will not leave enough for later on in life.
  • To move after starting an equity release scheme you may need to pay off some of your mortgage. This is so you can provide the equity to buy a new property. This can even apply if you are downsizing.
  • Equity Release is hard to reverse should you change your mind, so you need to be sure it is right for you.
  • The funds released from Equity Release can affect your entitlement to state benefits. Furthermore, choosing a Lifetime Mortgage  can make you liable to greater tax payments.

Of course, one of the main concerns for those with Equity Release is that it can affect how much you will be able to pass onto your family in inheritance.

If you are looking for some extra cash in your retirement and you are over 55, equity release can be an excellent way of tapping into the value that has accrued in your property.

What are the types of Equity Release?

A lifetime mortgage is a loan which is paid as a tax free lump sum and secured against your home.

You don’t have to make regular repayments; if you prefer, the interest can be added to the capital and the loan, plus interest is repaid when your home is sold, when you die or move into long-term care – and in the case of couple, on the second of these events.

Lifetime mortgages are more flexible than Home Reversion plans. Although, be aware that if you chose not to make repayments, the amount of interest that is accrued can build up substantially. There are now some lifetime mortgage contracts which allow you to pay off all or some of the interest and/or capital.

Lifetime mortgages are available to people over 55 years old. The percentage that can be released will depended on your age, state of your health and property value.

More on Lifetime Mortgages

Home reversion plans allow you to sell part, or all, of your property at less than the market value. In exchange for this you will receive a tax-free lump sum.

You then either live in the property rent-free or for a peppercorn rent. This means that you can live rent free for the rest of your life, but you must agree to keep it maintained and insured.

There are also no monthly repayments to be made. When you die, the house is sold, and the lender gets their agreed share.

You can usually sell between 20–60% of the market value of your home and it is available to those over 65. The sum you receive will depend, not only on the percentage sold, but also on your age and on the home reversion provider.

A home reversion plan also allows you to stay in your home until you die or need to go into long-term care. As you are selling a share of your home, there are no interest payments to consider. This makes it simpler to plan for the future as you will know exactly what portion is being left as inheritance.

You must consider that a home reversion plan, once committed to, cannot be easily undone. Why not get in touch to discuss your Equity Release options?

 

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Equity Release mortgage lenders

The market for Equity Release mortgages has become much more complex. There are many different Equity Release providers offering a variety of options depending on individual circumstances.

Equity Release lenders are more specialised and have very specific target markets.

To ensure you’re met with the right deal, get in touch and one of the experts at our trusted business partners will discuss your circumstances.

They will be able to understand your needs and advise you on your most suitable options.

Equity Release interest rates

Like with any loan, the rate you’re offered will depend on your situation. As ranges fluctuate so much it can be hard to give an exact figure.

However, you will usually be looking between 3% and 6%. This can fluctuate both ways depending on your circumstances.

To get a more accurate idea of your options, reach out today!

Equity Release mortgage broker

Equity Release is a very specific area of mortgage lending and the need for good bespoke advice to match your needs is essential.

Although it may be possible to approach a lender directly, specific personal advice is not generally given. With some products even being offered on an “execution only” basis.

This means by using a broker you can open up your options, increasing your chances of a better deal.

Our trusted business partners have a number of highly skilled advisors who are able to help. So, why not reach out today?

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Equity Release FAQs

There are actually a few other methods that we commonly support individuals with.

A common way is to remortgage to release equity. This is a great way to move to a new mortgage deal and free up some capital.

Another popular method is to remortgage for home improvements or to consolidate debt. So, if you wish to settle some debts or carry out some essential TLC to your home, these could be great for you.

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Some common fees you may need to pay include:

  • Any legal fees from solicitors or conveyancing solicitors.
  • Property survey costs if needed.
  • Equity Release broker fees if you choose to use one.
  • Any interest added on top of the loan amount.
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