Equity release FAQs

*Updated April 2024*

Answers to all your equity release questions

We’ve pulled together answers to all the questions we are often asked by homeowners  considering equity release . We hope you find what you’re looking for, but if not, drop us a line with your question and we’ll get back to you.

You will need to speak to a suitably qualified adviser to find out whether equity release is right for you. Read our 'Questions to ask your equity release adviser' article. 

Equity release in brief

• What is equity?

  • Equity is the difference between your home’s current value and any loan or mortgage you have secured on it. So, if your house is worth £450,000 and you have a mortgage of £200,000, the equity you have in your home is £250,000.

    This is calculated as follows:

    £ current value of property

    minus

    £ outstanding mortgage/secured loan

    equals

    £ equity in your home

• What is equity release?

  • Equity release is a generic term for financial products that enable you to access the cash tied up in the value of your home, without having to sell it or move out. You still have the right to stay living in your home for the rest of your life, or until you have to move into full-time care.

    As long as you own your home and are aged over 55, you could use equity release to raise tax-free cash to enhance your standard of living, pay off your existing mortgage, improve your home, help your children or do almost anything else you can think of.

• What alternatives are there to releasing equity?

  • You should always look at all the alternatives before committing to an equity release plan. For example, if you have any savings or investments, it would almost certainly be financially preferable to use them first. You could also consider downsizing to a smaller property, arranging a personal loan or mortgage, or discussing ways your family might be able to help you.

    However, if you don’t have enough savings, couldn't manage in a smaller property and don't want to ask family for help, equity release could meet your needs.

• Are there different types of equity release?

  • YES, there are two main types of equity release: lifetime mortgages and home reversion plans.

• What is a lifetime mortgage?

  • A Lifetime mortgage is a loan secured against your home. The loan, plus compound interest, is repaid when you or the last surviving mortgage holder dies or moves out of the home and into long-term care. Until that time, you retain full ownership of your property and there are no monthly repayments to make.

    Some lifetime mortgages allow you to make repayments if you wish and you can choose to take the money in one lump sum, in monthly instalments, or as and when you need it.

    Lifetime mortgages are the most popular type of equity release in the UK, accounting for more than 99% of all the equity release plans arranged.

• What is an enhanced lifetime mortgage?

  • Enhanced lifetime mortgages allow people with health issues to borrow extra.

    Lifetime mortgage lenders will usually consider the health and lifestyle of the youngest applicant when they work out how much they can lend you. It's always best to be honest about any health or medical issues, because they could actually earn you more favourable terms and a lower interest rate.

• What is a home reversion plan?

  • A home reversion plan enables you to sell part or all of your property to the equity release company at a significantly reduced price in return for a tax-free lump sum, a regular income, or both.

    You then have the right to continue living in your home rent-free until you die or move into permanent long-term care. At this point your home will be sold and the provider will take their percentage of the sale proceeds.

  • A home reversion plan enables you to sell part or all of your property to the equity release company at a significantly reduced price in return for a tax-free lump sum, a regular income, or both.

    You then have the right to continue living in your home rent-free until you die or move into permanent long-term care. At this point your home will be sold and the provider will take their percentage of the sale proceeds.

Equity release eligibility

• Who is eligible for equity release?

  • To be eligible for equity release you (or the youngest homeowner if you are joint applicants) need to be aged at least 55 for a lifetime mortgage or 60 for a home reversion plan.

    The property you own usually needs to be:

    • Your main residence
    • In mainland England, Scotland or Wales
    • Freehold, or leasehold with at least 80 years left on the lease
    • Worth at least £70,000.
• Does equity release have age limits?

  • For a lifetime mortgage, you need to be at least 55 years of age to apply. If you are applying in joint names, the younger applicant should be at least 55.

    For a home reversion plan you need to be aged 60 or over.

    Some providers have a maximum age of 90, while others do not specify an upper age limit.

• Can joint home owners take out equity release?

  • If you are married, in a civil partnership, or a long-term relationship and own your home together, you can apply for a joint equity release plan, as long as the youngest person is 55 or over.  When the first person dies or has to go into long-term care, the other can stay on in your  home for as long as they want.

    However, you arrange equity release just in your name and have someone living with you, once you die or move into care they would have to move out of your home.

• Can you release equity if someone else lives with you?

  • Yes, you can, although anyone aged over 17 (including your children) will usually be asked to sign a legal undertaking waiving their rights to continue living in the property after you (or the last living applicant) has died or gone into long-term care. This is to protect both you and the lender – and to make sure the property can be sold without anyone objecting.

• Can you take out equity release if you still have a mortgage?

  • Yes, you can. Your equity release provider will insist you pay off your outstanding mortgage as a priority, either from savings or from the money you release.

Equity release vs Remortgaging

• Do you have to remortgage to release equity?

  • You don’t have to remortgage to release equity. If you are 55 you could consider an equity release lifetime mortgage.

• What is the difference between equity relase and remortgaging?

  • Remortgaging to a larger mortgage is a way you can release some of the equity tied up in your home but it’s not the same as equity release.

    When you remortgage your house you arrange a new mortgage, typically for more money, with monthly repayments over a fixed term. Equity release lets you unlock money tied up in your home without having to make monthly repayments.

    Equity release is still a loan secured against your home, but it is only repaid when you die or move into long term care, and the property is sold.

The amount of equity you can release

• How much equity can you release?

  • The maximum amount of equity you can release from your home could be as much as 60% of the property value. Your age and the value of your home will determine how much you can release; usually, the older you are, the more equity you can release.

• Is the amount of equity you can release based on your income?

  • No. The amount you receive will depend only on your age (or the age of the younger person in a joint application) and the value of your home. Your income will not be considered at all.

    If you'd like to see how much money you may be able to release, try our free online equity release calculator.

• Will your health affect the amount of equity you can release?

  • It will, but not in the way you might expect. Poor health might allow you to release more money – for example, if you smoke or live with certain medical conditions.

    However, if you apply for equity release as a couple, the younger applicant’s health will be taken into consideration. If it is just the older applicant with health issues, that won't affect the amount you could receive.

• Do you pay tax on equity release?

  • No, you don’t. The cash you release is tax free and all yours to use as you wish.

    What you decide to do with the money might have tax implications though. For instance, if you invested the money until you needed it, rather than spending it, you might be liable for tax on the amount you put aside. For this reason, equity release is best regarded as a source of income or funding for particular purposes, rather than for saving.

The money you release

• What can you do with the money you release?

  • How you use the money you release is up to you: you could use it to pay off any remaining mortgage on your home or repay other debts and credit; you could set it up to provide yourself with extra income each month; you could improve your home or relax on a much-needed holiday; or you could help your family – perhaps to get on the housing ladder or towards education costs.

    However, you should be aware that a lifetime mortgage may possibly cost more over the long term than your current mortgage or loans, as a result of compound interest continuously increasing the amount needing to be paid back. That's why it's important to talk to a professional adviser before using equity release to consolidate your existing debts.

• Do you have to take all the money at once?

  • With any equity release lifetime mortgage, you will receive a lump sum at the start of your plan. However, if you choose a drawdown lifetime mortgage you can choose to hold a proportion of the loan in reserve, to draw on as and when you like. In fact, these plans can often work out to be more cost-effective because, as you only pay interest on the cash you have withdrawn, the interest grows at a slower pace.

• Can equity release be used to pay care home fees?

  • Yes. This is possible if you haven't set up an equity release plan already, and if there is no one with the right to continue living in your home.

    Some lifetime mortgage lenders will consider an application for an investment property scheme, or a landlord equity release scheme, where an appointed Power of Attorney can use it to pay for your care home fees. Some even allow the property to be rented out to raise extra money to cover your care.

• Can equity release to be used to buy a second home?

  • You can use the money you release for any purpose. If it is your dream to buy a second home, whether in the UK or overseas, a lifetime mortgage may be able to fund your purchase.

    Bear in mind that you will be required to live in your primary residence for a minimum of six months of the year. Ideally, you would also be in a position to purchase the second property outright with the money you release, so that you don’t need a standard mortgage as well.

    Wherever you buy, you will also have solicitor’s fees to pay, and if you’re buying in the UK, you may have to pay stamp duty, depending on the value of your second home.

Repaying equity release

• Can you make payments on a lifetime mortgage?

  • Yes, you can. Many lenders have lifetime mortgages that allow you to make repayments without incurring a penalty, so you can reduce the amount by which your loan and interest increase. You can choose to:

    • Pay off some or all the interest each month
    • Make occasional repayments towards the actual loan (rather than just the interest)
    • A combination of both

    You can also stop making monthly interest payments at any time. If you do, the unpaid interest will be added to the amount you owe each month.

    There is an annual limit on how much of the loan you can repay, typically around 10%.

• Can you repay a lifetime mortgage early?

  • As the name suggests, a lifetime mortgage is intended to be in place for the rest of your life and repaid when you die or permanently move into long term care. If you decide to fully repay your lifetime mortgage early, you will incur an early repayment charge, which could be as much as 25% of the amount you borrowed.

    However, there are some circumstances where you may not incur any penalty, such as:

    • On any interest or partial repayments, you choose to make
    • If you have a joint lifetime mortgage and the last surviving person pays off the mortgage within three years of the first person dying or moving into long term care
    • If your lifetime mortgage allows you to downsize after a given period (usually 5 years), provided you can repay the loan in full out of the profit from the sale of your current home
• What is compound interest on equity release?

  • Unlike traditional mortgages, a lifetime mortgage is usually only repaid when your home is sold. In the meantime, as there are no monthly repayments (unless you've chosen to make some as part of your agreement), the interest builds up.

    Each year, the interest due is added to the amount you've already borrowed. This increases the size of your loan, so the next year you'll be charged interest on a larger amount. Every year you are charged interest on a larger and larger sum, dramatically increasing the total amount owed.

    You can reduce this build-up by arranging to pay off some or all of the interest each year.

• Are lifetime mortgage interest rates fixed?

  • Most interest rates on lifetime mortgages are fixed for life, helping you to budget accurately and plan ahead.

    However, if for some reason you would prefer a variable interest rate, there are some lenders who offer this option.

    With variable rate equity release, the initial interest rate may be lower than a fixed rate plan. However, this rate could rise over time, up to an agreed maximum or ‘cap’ that is likely to be higher than the fixed rates on offer.

• When must equity release be repaid?

  • Equity release is repaid when you die or move into long term care, usually from the proceeds of selling your home.

• What happens to equity release when one of you dies or goes into care?

  • If you've taken out a joint equity release plan with your spouse or partner, the agreement will give each of you the right to continue living in your home until the second person dies or goes into care.

    If the surviving partner wants to downsize, some lifetime mortgage lenders will allow them to pay off the loan without penalty, provided they do so with an agreed time period, which is usually three years.

• What happens to a lifetime mortgage when you die?

  • If your lifetime mortgage is in your name only or you outlive your partner, it will need to be repaid when you die, usually within 12 months.

    Interest on the loan will continue to accrue until it is paid off, most often through the sale of your home, although other means can be used. Once your lifetime mortgage has been repaid in full, any money left over will go to your estate and given to your beneficiaries according to your will.

    If the property is not worth enough to pay off the loan, and your mortgage lender is an Equity Release Council member, a No Negative Equity Guarantee ensures that no one will be left to foot the bill for the outstanding amount.

• What happens to a home reversion plan when you die?

  • If your home reversion plan is in your name only or you outlive your partner, it will need to be repaid when you die. The sale is usually handled by the plan provider.

    Once your property has been sold the proceeds will be shared out according to the percentage of your home that you sold to the provider. So, if you sold 50%, the home reversion company will take 50% of the proceeds, and the remaining 50% would go to your estate and given to your beneficiaries according to your will.

    If you sold 100% of your home, the plan provider will keep all the proceeds of the sale and your estate will receive nothing.

  • Equity release is repaid when you die or move into long term care, usually from the proceeds of selling your home.

    • Lifetime mortgages

    With a lifetime mortgage, you remain the legal owner of your home. When the time comes, your legal representative or executor will need to sell your home and pay off your equity release loan, plus all the interest that has accrued over the year.  To make sure they get the best price, the lender will usually allow 12 months to sell the property.

    Any balance left over can be used to pay your care home fees or be added to your estate and distributed according to your will.

    • Home reversion plans

    With a home reversion plan, the equity release company becomes the legal owner of all, or part of your home and it is their responsibility to sell it. When the time comes, this will usually be done with about two months.

    If you only sell part of your home to the equity release company, either you or your beneficiaries will receive the full market value of the percentage you still own.

    If you sell 100% of your home to the equity release company, neither you nor your beneficiaries will receive any of the sale proceeds.

Equity release and Inheritance

• Can you leave an inheritance with equity release?

  • Like many people, your home may be the most valuable asset you have to pass on. As the equity release you have taken out is usually repaid by the sale of your property, the amount you can leave to your relatives, friends or chosen charities will be reduced.

    With a home reversion plan, when your home is sold the proceeds will be split between your scheme provider and your beneficiaries, according to the percentages originally agreed.

    With a lifetime mortgage, the overall effect on your estate will depend on how much you borrow, how long the mortgage runs for, and whether you have repaid any of the interest or capital.

• Is it possible to ringfence some equity as an inheritance?

  • Most lifetime mortgages now allow you to arrange an Inheritance Protection Guarantee, which protects a percentage of the final sale value of your property, so you can leave it to your children or grandchildren.

• Does equity release affect inheritance tax?

  • Inheritance Tax (IHT) is calculated based on the size of your estate. Releasing equity would reduce your estate’s value and so it can lead to you paying less IHT upon your death, or your estate could fall under the threshold completely. However, this only applies if you have spent the equity released, not if you have invested. Releasing equity ultimately reduces the value of your estate, so it is important to remember that this will have an impact on your future beneficiaries.

• Will you need to alter your will?

  • Not necessarily – it will depend on the content of your current will and your plans for the money you release.

    You might want to reword it if you give some of it to a family member as a 'living inheritance' and want to make sure other family members are fairly compensated in the light of this.

    We would suggest reviewing your Will with a professional adviser to make sure it still reflects your wishes. It also makes sense to ensure your executors are aware of your equity release arrangements.

Equity release and your property

• What types of property can you release equity on?

  • Your home will need to meet your provider’s requirements, just as if you were applying for a traditional mortgage, and all lenders have slightly different criteria on the property types eligible for equity release. Some aspects that might cause a problem (or reduce your options) are:

    • Buildings of non-standard construction, such as wood or concrete, timber frames, single-skin brickwork, or flat roofs
    • Sheltered accommodation
    • A park home
    • A house in a high flood risk area
    • A property with a record of subsidence
• Who is responsible for maintaining the property?

  • You will be responsible for keeping your property in a good state of repair and you will also need to make sure it is always adequately insured.

• Can you get equity release on a second home?

  • The answer is probably. Some equity release providers will consider a holiday home, as long as it is of standard construction and on the UK mainland. They will also want to know whether you let the property and, if so, for how many weeks per year.

    The amount you can release from a second property is likely to be less than the amount you could release from your main home.

• Can you move house with equity release?

  • Yes, you can. With most lifetime mortgages you can ask to transfer the loan to your new home, but the lender’s response will depend on the type and value of the new property. Most traditionally built freehold properties (or leasehold with more than 80 years left on the lease) in England, Wales or Scotland would be accepted.

    Some lifetime mortgages even include an option where, if you downsize after a set period of time (usually 5 years), you can repay the loan and interest in full without incurring an early repayment charge.

Equity release reservations

• Will I own my home with equity release?

  • With a lifetime mortgage, the answer is an unqualified 'yes'. All lifetime mortgages allow you to keep full ownership of the property and benefit from 100% of any increase in your home’s value.

    With a home reversion plan, you sell a percentage of your home to the plan provider, so you only own the share that you haven't sold (if any). However, you will have the right to continue living there rent free for the rest of your life.

• Does equity release affect your state benefits?

  • The money you raise through equity release will improve your financial position, so it might affect any means tested benefits you receive, such as Pension Credit and/or Council Tax Credit.

    However, equity release does not affect your state pension, or any benefits related to disability or health, such as Attendance Allowance.

• Could you lose your home with equity release?

  • No. Rest assured, all Equity Release Council approved schemes give you the right to stay in your home for the rest of your life, or until the last surviving applicant has moved into long-term care. This is guaranteed and will be clearly written into your equity release offer from the start.

• Is it possible to owe more than the value of your home?

  • No. All Equity Release Council approved schemes include a 'no negative equity' guarantee. This ensures that amount owed on a lifetime mortgage can never be greater than the value of your home.

    This guarantee also ensures that you will ever have to start making payments to prevent the debt overtaking the value of your home, will never be forced to leave your property because its value is falling and neither you nor your beneficiaries will ever have to repay more than the value of your property.

• Can an equity release provider make changes to the terms?

  • No. Once an equity release plan has been set up, the terms will stay the same until it has been repaid.

    Even if the lender stopped offering equity release schemes and transferred your loan to another provider, the new company would have to keep to the existing terms and your plan would continue as originally agreed.

• Does equity release mean you are renting yor home?

  • Not if you choose a lifetime mortgage. You keep full ownership of your home as long as you live or until you need to go into full-time care.

    However, with a home reversion plan you sell part or all of your home to the equity release provider. Legally, you are then their tenant, but you don’t have to pay rent.

• Is equity release safe?

  • Yes, equity release is safe.  The bad old days are long gone. Equity Release is tightly regulated by the Financial Conduct Authority (FCA), ensuring the advice you receive is transparent, fair, and not misleading.

    Make sure your provider is a member of the Equity Release Council – the industry body whose standards include various guarantees for your security, such as a promise that you will never owe more than the value of your home, and that you can continue living in your home for as long as you wish.

• How does the Equity Release Council protect you?

  • If your provider is a member of the Equity Release Council , you will be protected by the following guarantees:

    • Fixed interest rates - With a lifetime mortgage, the interest rate must be fixed for life or capped at an upper limit if it’s a variable rate.
    • No negative equity guarantee - Even if the money left after your home is sold and the estate agents' and solicitors' fees have been paid is not enough to repay the outstanding equity release loan, neither you nor your beneficiaries will be liable to pay the shortfall.
    • Right to live in your home for life - As long as your home is your main residence and you abide by the terms of your equity release contract, you have the right to live in your home for the rest of your life or until you enter long-term care.
    • Portability - You have the right to move house and use the new property as security for your equity release loan, provided the new property meets your lender's criteria.

Applying for equity release

• How much does it cost to arrange equity release?

  • The cost of arranging equity release will vary according to the scheme and provider you choose. Costs will usually include some or all of the following:

    • An arrangement fee
    • A valuation fee – although some lenders do offer free valuations
    • Legal costs – you will need a solicitor
    • Possible rental charges
    • A fee charged by your independent adviser
    • The provider's arrangement fees – most lenders don't charge these, but sometimes you can find a better interest rate with a lender that charges an arrangement fee

    Some of these charges can be added to your equity release loan, enabling you to pay less upfront if that's easier for you. Your adviser and lender should ensure that all these charges have been discussed with you and confirmed in writing before you commit to the plan.

• How long does an equity release application take?

  • It usually takes about 6 – 8 weeks from the date you apply until you receive your equity release funds.

• Why seek expert advice when considering equity release?

  • With a huge number of plans and deals on the market, it can be difficult to compare equity release plans and weigh up which might work best for your situation. That’s why speaking to an equity release specialist such as Age Partnership, who can research plans across a wide range of leading providers, rather than just a select few, could help you find the right solution for your needs, and even a better deal.

  Next steps

  We hope you found answers to your questions on equity release, but if not, don’t hesitate to drop us a line with your question and we’ll get back to you.

  Or to get an idea of how much money you could unlock from your home, use our free and easy to use equity release calculator.

  Try the calculator

  Ways to contact us

  

  Call 0800 368 8466

  

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  Our team have put together a number of articles which may help you decide whether equity release could be right for you: