What is equity release?
Last updated 2nd August 2023 by the SunLife Content Team
10 min read
Equity release is a way to access some of the money tied up in the value of your home if you are over the age of 55. You can release the money as a lump sum or in instalments, and can continue living in your house for as long as you’re able.
There are different equity release plans that allow you to release this cash, either by taking out a loan secured against your home, or by selling part or all of it. The two main types are lifetime mortgages (the most popular option) and home reversion schemes.
Some people choose equity release to live more comfortably in retirement, fund home improvements or to help a family member with a cash gift.
What is equity in a house?
The equity in your home is the market value of your property minus any outstanding mortgage or other debt secured against it.
With the most common type of mortgages, your equity increases as you make mortgage payments and as your property increases in overall value.
Over the years, property prices in the UK have risen(www.ons.gov.uk opens in a new tab). So, if you bought your home some time ago, you could now find yourself with a good amount of equity.
Here are a few examples:
- If your home is worth £350,000 and your mortgage is paid off, you would have £350,000 equity
- If your home is worth £250,000 and you have an outstanding mortgage of £50,000, you would have £200,000 equity
- If your home is worth £150,000 and you have an outstanding mortgage of £20,000 and an additional secured loan from your mortgage lender of £5,000, you would have £125,000 equity
The exact amount of equity you can release will depend on your age and personal circumstances.
Use our 60 second equity release calculator
Use our 60 second equity release calculator
Use our equity release calculator
Use our 60 second
equity release calculator
Release tax-free cash from your home
Understanding equity release
Equity release plans are available to over 55s who own a qualifying property in the UK.
Depending on the plan, you can release the money as a lump sum or in smaller instalments, and it’s up to you how you spend it.
It’s a tax-free sum you can use however you like.
Once you’ve accessed your money, you won’t have to make any monthly repayments. If you’d like to make ad hoc or regular repayments, some plans offer this option. Choosing to make repayments – however small – will help reduce the amount of interest you pay over the lifetime of your loan.
With the most popular form of equity release, the outstanding loan (plus interest if unpaid) will be paid back when you sell your house – which will usually be when you pass away or move into long term care.
Visit our 'How does equity release work?' guide to learn more about the process and how to apply.
Types of equity release schemes
There are two main ways to release the equity tied up in your home without having to move:
- Lifetime mortgage – where you borrow money against the value of your home
- Home reversion scheme – where you sell all or part of your property in exchange for money
For an introduction to lifetime mortgages and home reversion schemes, visit our guide to different types of equity release.
An expert adviser will be able to help you decide which type of equity release scheme suits you best and how much you could release.
How old do you have to be for equity release?
To take out equity release you need to be 55 years old or older. If you're taking out a joint equity release plan, you both need to be at least 55.
To take out a home reversion plan you must be 65 years of age or more.
There are other criteria to think about before you decide if equity release is right for you.
Is equity release right for me?
If you have money tied up in your home, and you’re looking for a way to fund a more comfortable retirement, equity release could be a way to boost your finances.
It could help top up your pension or other income when you stop working – and you can use the money to maintain or enhance your lifestyle in later life.
You’ll need to meet certain conditions in order to qualify for equity release plans. If you meet the criteria below, then you could be eligible:
- You're 55 or over
- You're the owner of a qualifying property in the UK
- Your property is worth £70,000 or more
If you have enough spare cash or other investments that will allow you to maintain your lifestyle or other spending goals in retirement, then equity release is less likely to be right for you. Make sure to consider alternative options that might be more suitable.
How does equity release affect benefits?
It’s important to remember that equity release can affect benefits you receive and may impact benefits that you might become eligible for in the future.
If you receive or may need to apply for means-tested benefits, they may be reduced, or you will no longer be eligible for them. These include:
- Pension Credit(www.gov.uk opens in a new tab)
- Universal Credit(www.gov.uk opens in a new tab)
- Council Tax Support(www.gov.uk opens in a new tab)
- Jobseeker's Allowance(www.gov.uk opens in a new tab)
- Income Support(www.gov.uk opens in a new tab)
- Employment and Support Allowance(www.gov.uk opens in a new tab)
A specialist equity release adviser will be able to advise what will happen to your benefits if you take out a plan.
They’ll talk you through the details and help you decide whether equity release is right for you.
Read our guide on how equity release affects benefits to find out more.
Equity release definitions and important terms
When researching equity release, some of the terms and phrases can be confusing.
To make things clearer, we’ve created this glossary that explains the terms you might come across.
Stands for Annual Percentage Rate also referred to as the Effective APR. The annual interest rate payable on a loan.
The money you pay to your provider to cover the various administration costs involved in releasing the equity from your home.
The person or people you nominate to receive the proceeds of your estate when you die.
Selling your home and buying another property (typically smaller) of lesser value to live in. Find out more about downsizing and equity release.
Drawdown lifetime mortgage
An equity release mortgage with the facility to draw money out as and when you need it, up to an agreed limit. Interest is only charged on the loan when money is released to you. Read our 'What is a drawdown lifetime mortgage?' article.
The market value of your house, minus any outstanding mortgage debt and other loans secured on it. If you own your home outright, then 100% of the equity is yours.
Equity Release Council (ERC)
The industry body that represents providers, qualified advisers, lawyers, intermediaries and surveyors who work in the sector. Members(www.equityreleasecouncil.com opens in a new tab) must adhere to the Council's Statement of Principles which puts in place safeguards and guarantees for you.
Everything you own (e.g. property, investments and possessions) when you die less any money you owe.
Financial Conduct Authority (FCA)
The independent body responsible for regulating the conduct of financial services firms and markets in the UK, to ensure consumers get a fair deal. The Financial Conduct Authority(www.fca.org.uk opens in a new tab) is the conduct regulator for 56,000 financial services firms and financial markets in the UK and the prudential regulator for over 18,000 of those firms.
Home reversion plan
A scheme that enables you to sell part, or all of your home to a provider at a reduced price in exchange for a tax-free cash lump sum. Ownership of your home passes to the provider, but you can continue to live there for the rest of your life, rent free. Read our 'What is a home reversion plan?' article.
When the provider allows more equity to be released from your home if you have health problems.
Inheritance protection guarantee
A feature that allows you to protect a portion of your home's value so you can guarantee an inheritance for your loved ones.
A scheme that includes another person living with you, such as your spouse. Should one of you die or go into care, the other person can continue to live in your home until they die or move out permanently.
Ownership of the property and its land for the duration of a lease agreement with the freeholder. At the end of the lease, ownership returns to the freeholder. See also Freehold.
Legal authority to stay in your home rent-free for the rest of your life or until you permanently move in to long-term care. See also Home reversion plan.
Loan to value (LTV)
This is the size of your mortgage in relation to the value of your property. It is usually shown as the percentage of your home that is mortgaged (e.g. 60%), with the balance being the percentage of the property that you own outright (e.g. 40%).
Taking a one-off cash amount upfront rather than receiving a regular income. See also Income.
When the value of a property is less than the debts owed on it.
No-negative equity guarantee
An assurance that neither you nor your beneficiaries will ever owe more than the value of your home. All ERC members must honour this guarantee. See also Equity Release Council.
Portable / Portability
The right to transfer a scheme to a new home provided the new property is acceptable to your provider. All ERC members must include this feature in the schemes they offer. See also Equity Release Council.
A quotation presented in the format required by the Financial Conduct Authority (FCA) to aid customer understanding. Also referred to as a Key Facts Illustration.
A way of borrowing money using an asset, such as your home, as a guarantee. If you don’t keep up repayments, the lender can repossess this asset and sell it to get their money back.
A qualified legal professional engaged to provide legal advice and support to clients. When arranging the release of equity from your home, a solicitor can be engaged to review contractual arrangements and prepare any legal documentation required.
The money you pay to your solicitor for providing legal services.
The money you release from your home is free of both Capital Gains Tax and Income Tax.
The formal assessment of a property’s value based on its condition and the current housing market, usually carried out by a surveyor on the provider’s behalf.
We hope this glossary sheds light on some of the jargon you may come across when considering your equity release options.
Equity release is a financial commitment related to your home, so it’s a big decision. As well as providing a roof over your head, it’s also a valuable asset and may form a significant part of your estate. Always take time to think through the pros and cons.
There’s a lot to consider, so it’s also important to get professional advice. This can be from a specialist financial adviser, a solicitor, or both to help you decide if it’s the right option for you.
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