Equity release explained


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What is equity release

Equity release is a way of accessing some of the cash tied up in your home - the 'equity'. The equity in your home is the difference between the value of your property and any loans you have against it. For example, if your property is worth £250,000 and you have a mortgage of £50,000, your equity (what you own) would be £200,000.

In this guide we explain all you need to know about what equity release is and how it works. Releasing equity has become a major part of later life financial planning for many UK households. Those looking for extra cash are now turning to their home to provide financial support and a more comfortable lifestyle for them and their family. The amount you can release will depend on the value of your home and your age.

How does equity release work?

Equity release is a way of accessing some of the cash tied up in your home - the 'equity'. The equity in your home is the difference between the value of your property and any loans you have against it. For example, if your property is worth £250,000 and you have a mortgage of £50,000, your equity (what you own) would be £200,000.

Equity release enables UK homeowners aged over 55 to unlock some of the money tied up in their home without having to move. The amount of equity you can access is based on your age and the value of your home. Depending on which product you choose, you can receive the cash either as a one-off lump sum, or as an initial lump sum followed by smaller amounts.  

The cash you release is tax-free and can be used for anything you want – from home improvements to fulfilling lifelong dreams and helping your family. Equity release can be used to pay off loans and give you some extra money to enjoy your retirement.

What types of equity release are there?

There are two types of equity release to choose from:

  1. Lifetime mortgage – This is a loan secured against your home that is repaid once you die or go into long-term care and your home is sold. A lifetime mortgage is the more popular form of equity release. You will have to be 55 or over to take out a lifetime mortgage.
  2. Home reversion scheme – This is an agreement where you sell part or all of your property to the scheme provider in exchange for a tax-free cash sum. You remain living in your property rent free for life or until you go into care. A home reversion plan is available to those aged 60+.

There may be alternative ways to access funds that could be more appropriate for you. A professional financial adviser can help you decide whether equity release is right for you and if so, which plan might best suits your needs.

What's the difference between equity release and a lifetime mortgage?

A lifetime mortgage is one of two types of equity release that lets homeowners access the money tied up in their property, whilst retaining full ownership of their home. This is different to a home reversion plan, which is other type of equity release where part or all of your home is sold.

Is equity release safe?

Yes equity release is safe. Equity release has cleaned up its act in recent years and is now tightly regulated and closely monitored.

In 2023, any company advising on or selling equity release must be regulated by the Financial Conduct Authority (FCA). You can also check whether they are members of the Equity Release Council, the industry body whose members voluntarily abide by a code of conduct. This code includes the following guarantees:

  • You can live in your property for life or until you move into permanent care, this is known as 'Security of tenure’
  • You can move your plan to a new home if it is acceptable to your equity release provider
  • No negative equity guarantee means that you will never owe more than the value of your home when it is sold, so your estate will not be liable for any losses.

How long does it take to release equity from my house?       

It usually takes around 6 to 8 weeks to release equity from your home, from making your application to receiving the money.

Time frames for arranging a home reversion plan are similar, but it can take a little longer. You should also allow for some time to take advice from an equity release adviser who will talk through your requirements and give you details of the most suitable equity release schemes for you.

Is equity release right for you?

Unlocking some of the cash tied up in your home can make a big difference to you in later life. However, equity release is not for everyone. Make sure you consider all possible alternatives and weigh up the pros and cons carefully:

Advantages of equity release: 

  • You continue to live in your own home at no cost for the rest of your life or until you move into long-term care
  • You'll never have to repay more than the value of your home
  • Your estate will never owe more than the value of the property when it's sold 
  • The money you release is tax-free and you can use it as you wish
  • There are no regular payments to make (unless you choose to repay some of the interest on a lifetime mortgage)
  • You can receive the money as a one-off lump sum, or as a smaller lump sum with the facility to draw more when you want

Disadvantages of equity release:

  • The effect of compound interest on a lifetime mortgage means that the amount owed will grow quite quickly over time
  • The amount you can leave as an inheritance will be reduced
  • With a home reversion plan, you waive the right for you or your beneficiaries to benefit from future increases in the value of your home, or the share of it you have sold
  • Your entitlement to certain state benefits may be affected
  • You may be penalised if you decide to repay your plan early.

Before making any decisions, you must consult a qualified financial adviser – ideally one who is independent of any particular provider and a specialist in equity release.

Expertise and impartiality are two reasons why we've chosen to team up with leading specialists Age Partnership. Their award-winning team researches plans and providers from across leading equity release providers to find you the most appropriate solution and secure you the best deal.

Next steps

To see how much equity you could release from your home in 2023, use our free and easy to use equity release calculator.

Or for free advice from an equity release specialist Age Partnership, call 0800 368 8466.

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Equity Release Council

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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.

If a link has an * by it, it means it is an affiliated link to an insurance company or broker that may result in a payment to the site. Should you use the equity release calculator, speak to an Age Partnership adviser and take out a plan out using their services, we receive a commission, however this will not affect the price you pay.

Also, from time to time you may see advertisements from third party companies who pay us a fee to advertise their services on our site.

None of the above arrangements constitute advice or recommendations, as other products and companies are available. You should always obtain independent, professional advice for your own situation.

The information provided on this site is accurate at the date of publication, occasionally however, things will change before we have had the opportunity to update them, so please do check. Always do your own research and take independent advice.

We do not investigate the solvency of any company mentioned on our website and are not responsible for the content on websites we link to.

Simply Equity Release is a member of the Equity Release Council and part of the Over50choices Group who is regulated by the FCA (No.5954280) for insurance products.

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