Equity release is a way to borrow cash tied up in a property without selling your home. But later life mortgages are complex and it’s important to look at the pros and cons and any alternatives. Here’s what you need to know.
Equity release explained
Equity release is a type of mortgage that lets you access the money tied up in the value of your home.
You can choose to make repayments and keep living in your home. The amount you borrow (plus interest) is repaid by selling your home when you die or move into long-term care.
The most common types of equity release are home reversion or a lifetime mortgage.
But equity release comes with some risks, and you’ll need to first speak to a specialist equity release adviser or mortgage broker.
How does equity release work?
Equity is the part of a property you own. So, if you have a mortgage, the equity is the difference between your home’s current value and what’s left to pay on the mortgage.
If you’re a homeowner aged 55 and over, equity release may allow you to borrow this money from your home without selling.
You can take it as:
a lump sum (most lenders say a minimum of £10,000),
smaller amounts taken when you need it or as a regular income – called a ‘drawdown’, or
a combination of both.
But it can be an expensive way to raise funds. The earlier you take out an equity release product, the longer you have the loan, and the more interest builds up.
It’s a lifetime commitment that can affect:
your future plans, including care at home,
eligibility for benefits, and
inheritance.
Before deciding, you must speak to an equity release specialist about the risks or discuss other options with a mortgage adviser.
Alternatives to equity release
Equity release can be complex. Always look at the other options available to you, particularly if you need to raise cash for things like funding later life care.
Talk over these alternatives with a mortgage adviser.
Downsize your property
One option is to sell up and move to a smaller home (called downsizing). You can then use the sale profits to raise the funds you need.
Read more in our downsizing guide.
Retirement interest-only mortgage
You can consider taking out a retirement interest-only mortgage if you can afford to make monthly repayments.
Each month you’ll make a payment to cover the loan interest, but the amount you borrow is usually only repaid when you sell your home, move into long term care or when you die.
Cash in other assets
Think about cashing in any investments or using savings before taking out an equity release product.
If you’re considering equity release to pay off problem debt, speak to a trained adviser for help.
Find free and confidential debt advice near you using our debt advice locator tool.
Equity release options explained
There are two equity release options:
1) Lifetime mortgage
This is where you take out a mortgage loan secured on your property - find out more about lifetime mortgages.
2) Home reversion plan
This is when you sell all or part of your property to a provider, usually below market value - read more about home reversion.
Whichever option you choose:
you’ll stay living rent free in your home for the rest of your life
there are usually flexible payment options, including the option to pay nothing
the loan, plus interest (if it applies), is repaid from the sale of your home after you pass away or move into long-term care.
To see how much you could release from your home, try searching for providers online or use StepChange’s free equity release calculatorOpens in a new window
Is equity release a good idea?
It’s tempting to focus on the immediate boost you can get from the money you unlock with equity release. Consider how it could affect your future choices and what you want to do in later life. Whether it’s right for you depends on your personal circumstances, such as:
- age
- health
- finances
- the amount you want to release
- the type of property (and its potential future value)
- your future plans.
But it’s important to make sure you have enough income for your future needs. Use our free Budget planner to see where your money is being spent each month.
If you simply want to raise cash, speak to a mortgage adviser about the alternatives to equity release that can help boost your bank balance.
Is equity release right for me?
It depends on your individual circumstances. Consider the pros and cons of each option.
The pros of equity release
-
Tax-free cash
Receive a tax-free lump sum or regular income. -
Optional monthly repayments
Choose whether to make repayments to reduce your final debt. -
Stay in your own home
Enjoy your retirement in familiar surroundings. Use the money for home adaptations to help you stay in your own home longer as your care needs change. -
Peace of mind
For joint borrowers, live in your home without penalty, or with less financial pressure if your partner passes away or moves into long-term care. -
Benefit from rising property values
Continue to benefit from the increasing value of your home (or the part you still own) without making additional payments. -
Wider eligibility
Unlike a standard mortgage, there’s no affordability assessment and the maximum age when you apply is usually less restrictive. -
Flexibility
You can use the lump sum for large purchases or as a gift to a loved one.
The cons of equity release
-
Impact on benefits
Entitlement to means-tested state benefits, Local Authority Grants or Council Tax reductions could be affected. See more about benefits in later life. -
Higher interest rate
Lifetime mortgages may have higher interest rates than ordinary mortgages. This means debt can increase quickly. -
Application fees
There can be substantial fees to apply, including charges for advice, solicitors, valuation, and arrangement. The total could be between £1,500 and £3,000. -
Affects future care plans
You may need the equity in your property to fund long-term care for you or your partner. Releasing money early limits your options. -
Hard to change
Agreements can be difficult to alter or include early repayment charges. -
Lifestyle limitations
Restrictions may apply, such as not being able to use your home as a holiday let, leave it empty for long periods, or make large structural changes. -
Reduced inheritance
Over time, the loan and accumulating interest reduces the equity in your home. If you leave the property to someone in your will, they will only receive what’s left after the loan is repaid, or the portion that you didn’t sell.
A mortgage adviser or equity release specialist can recommend the best choice for you - see below for details of where free help is available.
How to find an equity release adviser
Equity release firms must give you certain important information to help you decide if you should enter a scheme. A specialist adviser will help you understand your choices and make the right decision for your circumstances.
Find an equity release specialist using the Equity Release Council (ERC) directoryOpens in a new window Or to get support with other mortgage options, use our guide to find a professional adviser.
ERC members have specific standards (guidelines) to meet when making a recommendation, including:
assurance you’ll stay in your home for life, or until you move into care,
no-negative equity guarantee, and
fixed or capped interest.
They must say if a standard is not met with the lenders they recommend and clearly explain the risks to you.
Our Retirement adviser directory also lists registered financial advisers who specialise in retirement planning.
Always check your adviser is registered with the Financial Conduct Authority (FCA)Opens in a new window
When contacting an adviser, confirm:
their fees
what other fees you’ll pay (such as legal, valuation and set up costs)
if they search the whole market
what type of equity release products they can offer.
The adviser gives you a personal recommendation
Once you’ve spoken to an adviser, they will make a recommendation for your situation and provide:
a ‘suitability letter’ or ‘product confirmation letter’, and
a Key Facts Illustration (KFI).
Together these give you a personalised report. The KFI outlines the terms of your recommended plan, including:
the name of the provider and description of the scheme
the overall cost of the scheme and any fees to pay
the service you're getting, plus any other features
the interest rate deal (for lifetime mortgages)
details of regular payments and how much they would be if interest rates increased (for lifetime mortgages).
Make sure you read it fully and ask them to explain anything that is unclear.
You can use this information to shop around and compare similar schemes from other providers.
You’ll receive an offer for a solicitor to check
Once you’re happy and agree to your plan with your adviser, your application will need to be approved.
When this is confirmed, you’ll receive an offer document.
It will include details like:
the fees
your name and address
the amount you’ll receive
any special conditions such as clearing any outstanding mortgages.
Be sure to read it carefully. If you’re not happy or unsure, you don’t have to go ahead.
Finally, you’ll need to hire your own solicitor to check the details once you have agreed on an equity release plan.
Using equity release for debt problems
If you are struggling to make ends meet and are looking for financial help, there are agencies and charities that provide free information and advice.
Speak to someone if you’re struggling
If you want to use equity release to clear debts or help with your monthly repayments, remember that the equity loan will also need to be repaid.
If you’re worried about money, read our guide on Help if you're struggling with debt.
Other organisations that can help
There are other things you can do to resolve your difficulties, including getting free debt advice.
Find a free debt adviser near you, online or on the phone.
Using equity release for care costs in later life
If you want to use equity release to support the care needs of you or your partner, talk to your council about getting a care needs assessment. This checks if you’re eligible for local authority support.
Use our Benefits calculator to quickly find out what you could be entitled to.
Grants for keeping your home warm if you’re aged over 60
Depending on your age and circumstances, you may be also entitled to energy grants, financial aid or government support.
Energy Saving TrustOpens in a new window or call 0800 444 202 (for England, Wales and Northern Ireland), 0808 808 2282 (for Scotland)
