Find out what you need to know about releasing equity from your home in our handy equity release guide.
Unlock tax-free cash from your home
If you’re in or approaching retirement and have owned your home for some time, chances are you’ve benefited from the dramatic rise in UK house prices over recent years. So now you’re living in your most valuable asset but your pockets are no deeper, because the money is actually tied to bricks and mortar.
If this sounds like you, equity release can help you unlock some of the cash tied up in your home, without you having to sell up and downsize to a smaller, cheaper property. In fact, more and more people are choosing to raise money for retirement in this way – and in the UK today, someone takes out an equity release plan every 15 minutes.
Get the retirement you deserve
With more of us living longer, retirement has become a new phase in life to hopefully be enjoyed for many years. It’s an exciting prospect but also a potentially challenging one when it comes to money – especially if your pension doesn’t cover everything you need it to, and you don’t know how you’ll make up the shortfall.
Releasing some of the equity in your home can give you a tax free lump sum or smaller cash injections to top up your retirement income. And that means you can put your money to good use, rather than leaving it stuck in your property.
Types of equity release schemes
Lifetime mortgage is the most popular type of equity release scheme. Basically, you borrow against the value of your home while you continue to live in it. Unlike a typical mortgage, you don’t have to make repayments, instead interest is added and everything is repaid when the property is sold.
Home reversion schemes
With a home reversion plan, you sell all or part of your home at a reduced price and in exchange, you receive a cash lump sum and live rent-free in your home for life or until you move into long-term care.
Read more about the different types of equity release plan.
Deciding how to release equity in your home
Deciding which scheme works for you will depend on your current circumstances and your plans, including:
- Your eligibility
- The value of your home
- How much equity is available in your home
- Your age
- Whether you would like to leave an inheritance
- Whether you want to retain ownership of your home
How does equity release work?
Here is a simple summary of how a lifetime mortgage works:
- A lifetime mortgage is a loan secured on your property and is available to UK homeowners aged 55 and older
- You can access some of the equity tied up in your home tax-free, while continuing to live there
- Choose to take a one-off lump sum, or a smaller amount upfront with the facility to borrow more in the future
- The total you can borrow will depend on your age, your health and the value of your home
- You don’t have to make monthly repayments because the interest is added to the loan amount each year
- The loan plus interest is repaid when the property is sold — typically, when you die or leave your home permanently (e.g. you go into long-term care)
For details of how a home reversion plan works, read our article What is equity release?
Important things you should know
- Think carefully before borrowing against your home. You must always get professional advice from a specialist adviser, a lawyer or both
- The interest added to a lifetime mortgage can build up quickly and increase the amount you owe
- Releasing equity from your home will reduce the value of your estate and the amount you’re able to leave as an inheritance when you die
- Equity release may affect your tax position and your entitlement to state benefits
- The future market value of your home could be higher or lower than it is today
How it can help
Many people are living far longer than previous generations and have more time to make the most of their later years. But living longer can put a strain on your finances and your retirement pot may struggle to fund the way of life you’ve worked so hard for. Equity release could be a practical way for you to get hold of extra cash.
If you still have a mortgage, the money you unlock with equity release must go to pay this off first – which means you can enjoy a retirement with no monthly mortgage payments. After that, any money left over is yours to spend as you wish. Some people want to make life a little easier every day or help finance things they’ve always wanted to do. Others decide to help their family with a living inheritance – so they can see the joy it brings during their lifetime.
Here are just a few of the ways you could use the tax-free cash you unlock from your home.
A more comfortable retirement
- Clear outstanding debts
- Retire a little earlier than planned
- Top up your regular income
- Fund home improvements
Help the family
- Help children get on the property ladder or set up a business
- Pay education fees or living costs
- Finance a wedding or other family events
- Reduce the inheritance tax burden
- Adapt your home to your needs as you get older
- Fund care at home
- Pay funeral costs
- Pay medical or legal bills
- Take regular holidays or the holiday of a lifetime
- Finance a new car or caravan
- Fund leisure activities and hobbies
- Treat yourself to something you’ve always wanted
Try our FREE equity release Eligibility Checker
Considering equity release but not sure if you're eligible. Answer a few questions and our Eligibility Checker will tell you.
How much equity can I release?
Usually, it’s possible to release between 20% and 50% of the equity (or value) in your home – but the exact amount will vary depending on your circumstances.
When working out how much equity you can release, providers will look at two main things:
- How much your property is worth – a surveyor, sent by your equity release provider, will provide a professional valuation
- How long you’re likely to live after taking out your equity release plan – based on your age (and that of your spouse for joint applications) and your health
Try our FREE equity release calculator
Want to see how much money you may be able to unlock from your home with a lifetime mortgage? Use our equity release calculator for an estimate.
How safe is equity release?
As with any financial product, it’s important to make sure you do your research on the product or service and provider before making any decisions.
Today, the equity release market is fully regulated – and all equity release providers and advisers must be regulated and supervised by the Financial Conduct Authority (FCA). So, whether you have a lifetime mortgage or a home reversion plan, you can be sure that significant supervision and regulation is in place for equity release mortgages
For additional reassurance, there’s also the Equity Release Council (ERC) – a trade body whose members agree to abide by a strict code of conduct, including:
- A no-negative equity guarantee – so you will never owe more than your house is worth, and you don’t need to worry about saddling your family with debt
- The ability to transfer equity release schemes to another property without paying a penalty
Take it step by step
Releasing the equity in your home is a big decision. It’s important to consider all your options before deciding whether this is the right way for you to finance your plans – and make sure you understand the pros and cons.
First, ask yourself:
- Do you have any savings and investments that you could use?
- Could you downsize to a smaller property? Remember to take moving costs, fees and stamp duty into account
- If you only need a relatively small amount of money, would an unsecured loan be easier? Or could you borrow it from a family member and repay them from your estate?
- If you still have a mortgage, is it possible to extend your mortgage term for a few more years? (This is likely to depend on your age)
- If you’re on a low income, have you checked what grants or benefits you may be entitled to?
You should always seek professional advice so you understand what’s involved and fees you’ll need to pay. An independent expert adviser will be able to assess your personal situation and advise on the best option for you.
For extra reassurance, you could get a specialist solicitor to explain your legal obligations.
It’s also important to include your family in the decision so they understand how it would work for you and affect them, particularly in relation to inheritance.
Straightforward answers to your questions
Typically, to be eligible for an equity release lifetime mortgage you must be 55 or over and for a home reversion plan you must be 60 or over. You must be the homeowner and your property will need to be of standard construction and worth more than the minimum value required by your provider, usually around £70,000.
Yes you can. However, you will be required to pay off your outstanding mortgage using the cash you release from your home.
This will depend on your personal situation. Means-tested state benefits could be affected if you receive a cash lump sum as a result of releasing the equity in your home.
No, you don’t. The money you release from your home is tax free.
If you decide to put some of this money into savings or investments, tax may be payable on any income or interest you earn.
Yes, if you have chosen a scheme provided by a member of the Equity Release Council, you can move home and transfer your scheme without penalty (subject to your lenders agreement), as long as your new home complies with the scheme provider’s criteria. If you're downizing, you may need to repay some of the equity release loan.
Yes you can, although releasing equity in your home will reduce the value of your estate.
With a lifetime mortgage, you usually have the option to preserve part of your home’s value to leave as an inheritance. If you’d like to do this, make sure you let your adviser know so they can find a plan that suits your needs.
With a home reversion scheme, you can choose to only sell part of your home, leaving the rest as an inheritance.
No there isn’t. If you use a home reversion plan to release equity, you sell all or part of your property at the outset for a reduced price and owe nothing.
A lifetime mortgage is a loan secured on your home so the amount you owe will grow, but as long as your mortgage has a ‘no negative equity guarantee’, you will never owe more than your home is worth.
You will usually have to pay arrangement fees, legal fees and valuation fees. You will also have to pay for any legal and independent financial advice you receive.
With a lifetime mortgage, you may be able to have some of these costs added to the loan. With a home reversion scheme, you may be able to have some of the costs deducted from the amount of money to be released. Read more about how much equity release costs.
The SunLife Over 55 Equity Release Service is here to put you in contact with an independent expert adviser, so you can decide whether or not equity release is right for you.
When you make and keep your appointment with your adviser, we’ll send you a FREE £25 gift card.