*Updated January 2024*
Equity release is a way of releasing some of the cash tied up in your home. Whether equity release is a good idea for you will depend on your personal circumstances. If you’re a homeowner aged 55 or over and your property is worth more than £70,000, equity release could be a way to tap into some extra cash, particularly if:
- You want to stay in your own home
- Your retirement income needs exceed your current sources of income
- You aren’t able or don’t want to move to a cheaper area or downsize
- You’re comfortable leaving less to loved ones as an inheritance
- You have no beneficiaries to leave your property to.
Our expert author Ashley Shepherd says:
'It is important to stress that equity release is not the right choice for everyone. Always take specialist independent advice from a suitably qualified advisor to make sure you understand the alternatives and the risks associated with equity release before deciding whether it is right for you. I've put together some questions you may like to ask your equity release adviser when you meet'.
What you need to know about equity release to help you decide if it may be a good fit for you:
There are two types of equity release - reversion plans and lifetime mortgages, the latter being the most popular. A lifetime mortgage is a loan secured against the home you live in that doesn’t have to be repaid until you die or move into long term care. You can also choose to repay some or all the loan in the future if you wish.
When the time comes, the loan plus interest is usually repaid from the proceeds of selling your home. Any money left over would be paid to your estate.
A home reversion plan is an equity release scheme where a homeowner sells a portion or all of their home to a reversion company in exchange for a lump sum of cash or regular payments, while retaining the right to live in the property rent-free for the rest of their lives.
Why might equity release be a good idea?
UK house prices have been rising consistently for well over a decade, leaving many UK homeowners having paid off (or almost paid off) their mortgage and a home worth a lot more than they paid for it. Equity release could give you a way to free up some of the wealth tied up in your home while you continue to live in it and importantly, own it.
Taking out equity release is a safe option, regulated by the Financial Conduct Authority and overseen by the Equity Release Council. It may also be a simpler option than a ‘standard’ mortgage, as equity release providers tend not to need as much personal financial information to make a decision. Most consider the youngest applicant’s age, where you live, the type of property you own and the amount of equity you have in your home. They are unlikely to take your income and outgoings (other than an existing mortgage) or credit history into account.
The money you release is tax-free and can be used any way you like, such as paying off your mortgage, clearing debts, topping up your pension income, helping your family financially, renovating your home, paying for care or taking your dream holiday.
Choosing a lifetime mortgage from a provider who is a member of the Equity Release Council comes with other valuable benefits including:
- No negative equity guarantee ensures that if the sale proceeds of your home are not enough to pay off the loan plus interest, your beneficiaries will not have to pay the shortfall. The lender will accept the loss.
- Interest rates must be fixed or if variable have a cap that is fixed for the lifetime of your loan
- The right to move to another property as long as your lifetime mortgage lender approves it
Use our calculator to find out how much money you could release from your home:
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More information on the topics raised in this article
Why might equity release be a bad idea?
Like any financial product, equity release involves risks that must be weighed up alongside the benefits, before deciding it’s right for you. Here are the main risks to be aware of, but it’s also worth reviewing the small print of any equity release offer you’re made.
- Equity release reduces the value of your estate, so there will be less for loved ones to inherit. On the other hand, it reduces your inheritance tax liability.
- Coming into a large sum of money may negatively impact your tax status and your eligibility for means-tested benefits.
- The compound interest payable on a lifetime mortgage means the total amount you owe can grow quickly. However, there are options available to help you limit the amount of interest building up.
- Equity release is a lifelong commitment that cannot be easily reversed if you change your mind.
Equity release may not be a good idea if:
- You can fund your retirement needs from other sources of income
- You are willing to downsize to a smaller property
- You want to leave the value of your home as an inheritance
- A qualified, independent financial adviser has advised you against equity release
When might equity release be a good idea for you?
- Your other sources of income (if you have any) are not enough to fund your retirement plans
- You do not want to move to a cheaper or smaller property
- You're not concerned about how much you will leave as an inheritance when the time comes
- A qualified, independent adviser has advised you that equity release could be appropriate for your needs
5 questions to ask yourself about equity release will help you weigh up whether equity release is right for you.
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Speak to an equity release specialist
To find out whether an equity release scheme could be a good idea for you, speak to a qualified equity release adviser such as Age Partnership.
Age Partnership’s award-winning equity release specialists can research and compare schemes from market-leading providers, some of which they have negotiated preferential rates with. They can also talk you through alternative ways to raise cash as you get older, so you can find a solution that best suits your specific needs.
Next steps
To see how much equity you could release from your home, use our free and easy to use calculator.
Try our equity release calculator
Or for free, no-obligation advice from equity release specialist Age Partnership, call 0800 368 8466.