Equity release guide

Types of equity release schemes

Lifetime mortgage

You borrow against the value of your home while you continue to live in it. You don’t have to make repayments, instead interest is added to the mortgage and both are repaid when the property is sold.

Home reversion schemes

You sell all or part of your home at a reduced price and, in exchange, live rent-free for life in your home and receive a cash lump sum.

How does it 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?

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.

Releasing some of the equity in your home could make life a little easier every day and help finance your future plans. It could also provide a living inheritance for your family.

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

Practical realities

• Adapt your home to your needs as you get older
• Fund care at home
• Pay funeral costs
• Pay medical or legal bills

Well-deserved treats

• 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

Are they safe?

All providers and advisers are regulated by the Financial Conduct Authority (FCA).

You can also check if your chosen provider or adviser is a member of 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
• The ability to transfer your scheme to another property without paying a penalty

For full details, read the ERC’s full Statement of Principles or find an ERC member.

Take it step by step

Releasing the equity in your home is a big decision. It’s important to consider all of your options before deciding whether this is the right way for you to finance your plans.

First, ask yourself:

1. Do you have any savings and investments that you could use?
2. Could you move to a smaller property? Remember to take moving costs, fees and stamp duty into account
3. 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?
4. 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)
5. 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 the fees you’ll need to pay. An experienced specialist adviser will be able to assess your personal situation and advise you 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.

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