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Equity release pros and cons

A simple guide to some of the pros and cons of equity release plus the advantages and disadvantages of lifetime mortgages and home reversion plans.

The ins and outs of unlocking equity from your home

Equity release schemes have become increasingly popular over recent years. If you’re over 55 and have paid off all, or most of your mortgage, they can let you release some of the value (or equity) in your home, without having to move out. That means you could get your hands on some extra cash to top up your pension, carry out home improvements, take the holiday of your dreams or give your family a helping hand. That might sound great, but it’s important to understand some of the pros and cons of equity release before considering it further.

Combination padlock on a pile of coins

The pros of releasing equity in your home

  • Tax-free cash to spend how you wish – you won't have to pay income tax or capital gains tax on the money you release from your home
  • You get to stay in your own home – no need to downsize or go through the hassle of a move
  • You won’t have to make any monthly repayments unless you want to – everything can be sorted when you die or move out permanently e.g. go into residential care
  • You can have money when you need it – you can take out a lump sum or smaller amounts over time, to provide a regular income, up to the limit set by your plan provider
  • You’ll never owe more than the value of your home – thanks to the ‘no negative equity guarantee’. This also ensures that no debt can be transferred to your next of kin, after your home has been sold
Mature woman withdrawing money from ATM

And the cons…

  • You can’t leave your home as an inheritance – when you die or move out permanently, your property must be sold to repay the scheme provider first. Only any extra money left over afterwards will go to your estate to leave as an inheritance. While you can ringfence some of the value of your home to leave as a legacy, this will reduce the amount of equity you can release
  • Your benefits may be affected – releasing the cash from your home will increase your income or savings and that in turn may affect your entitlement to state benefits
  • There may be fees to pay – you may have to pay arrangement fees and for professional advice

There are two main schemes available – Lifetime mortgages and Home Reversion Plans. Here are some specific pros and cons of each.

Lifetime mortgage

In simple terms, this is a loan secured on your home. Nothing changes for you – you continue to live in your property and maintain ownership. Then when you die or go into long-term care, your home is sold and the loan repaid with interest from the proceeds.

Pros

  • You retain ownership of your home – you'll still be the legal owner of the property just as with a standard mortgage. You pay interest on the money you release, which is technically a loan. This loan plus interest is repaid when you die or sell your property
  • You'll never owe more than the property is worth – lifetime mortgages provided by members of the Equity Release Council offer a ‘no negative equity guarantee’, so whether house prices go up or down, the amount to be repaid will never be more than the value of your property
Mature couple relaxing on sofa at home, shot from above

Cons

  • Higher interest rates – the interest rate you pay on a lifetime mortgage may be higher than on a standard mortgage
  • The amount to be repaid can grow quickly – because of the effect of compound interest. This is when interest is added to both the loan amount and the interest that’s already built up. As a lifetime mortgage doesn’t have to be repaid until you die or go into long term care, the amount owed will grow rapidly over the years
  • Early redemption costs can be high – a lifetime mortgage is a lifelong commitment. If you decide to pay it off early, you may have to pay a redemption fee. Always check what charges may apply

Home reversion plan pros and cons

With this type of scheme, the provider will buy all, or part of your home at a reduced price and you get the cash from the sale. You can continue to live in the property for the rest of your life, but under a lease agreement as a tenant, rather than a property owner.

Pros

  • You can live rent free – in your own home for the rest of your life
  • You don’t pay interest on the money you release – because it is the proceeds of the sale of your home (or part of it) to the scheme provider, not a loan
  • You don't need to sell all of your home – you can choose to only sell a percentage of it. How much equity you can release will depend on your age and your health
  • You can create an inheritance for your loved ones – if you only sell part of your home to your scheme provider, you still have equity in your home and your estate will benefit from any future rises in house prices on the share you retain ownership of
 Mature couple eating lunch, smiling at each other

Cons

  • You sell at a discounted price – you sell your property at a price considerably below market value. Also, if you were to die soon after signing up to a home reversion plan, you'll have lost a significant asset, in return for little benefit
  • You won’t own your property any more – although you'll be living rent-free, not having ownership on paper can be unsettling for some
  • You’re responsible for ongoing household costs – you'll still be responsible for all your household bills and will be expected to maintain your property to a standard acceptable to the scheme provider
  • You won’t benefit from house price rises – if you sell 100% of your home, you won't benefit from any future house price rises
  • Your options may be limited - if your circumstances change. A lifetime mortgage may offer you more flexibility and value for money

Interested in unlocking the value of your home?

A lifetime mortgage or home reversion plan could be a simple way to unlock the equity in your home, and help you make more of your retirement. However, it’s important to consider whether it’s the right route for you. Always seek professional advice before making a decision, as there may be other options more suited to your circumstances that you could use to access similar amounts of money.

Whenever you’re ready, we’re here for you

For more information and to check your eligibility, call The SunLife Over 55 Equity Release Service today on 0800 633 5566 or request a call back.

Here's the information that you need to know about who we are and the other companies that we work with in order to provide our products and services.

Who are SunLife? 

Phoenix Life Limited trades as SunLife and is the provider of the Guaranteed Over 50 Plan, SunLife Insurance and the life insurance policy payment option for Funeral Plans. Phoenix Life Limited’s registered office is at 1 Wythall Green Way, Wythall, Birmingham, B47 6WG (registered in England, no. 1016269). Phoenix Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and is entered on the Financial Services Register (registration no. 110418). As part of SunLife’s commitment to quality service and security, telephone calls may be recorded.

SunLife Limited distributes financial products and services and is a company limited by shares, registered office: 1 Wythall Green Way, Wythall, Birmingham, B47 6WG (registered in England, no. 05460862). SunLife Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (registration no. 769427).

You can contact us by post at SunLife, PO Box 1395, Peterborough, PE2 2TR or by phone on 0800 008 6060.

If you choose to add Funeral Benefit Option to your Guaranteed Over 50 Plan the funeral services are arranged and provided by Dignity Funerals Limited. Dignity Funerals Limited is a company registered in England and Wales No. 00041598. VAT registered No. 486 6081 14. 4 King Edwards Court, King Edwards Square, Sutton Coldfield, West Midlands, B73 6AP. Telephone No. 0121 354 1557. Fax No. 0121 355 808. Part of Dignity plc. A British Company. Dignity is not authorised or regulated for this activity by the Financial Conduct Authority or the Prudential Regulation Authority but is a member of the National Association of Funeral Directors.

Who provides the Funeral Plans?

The funeral services are arranged and provided by Dignity Funerals Ltd which is not authorised or regulated for this activity by the Financial Conduct Authority or the Prudential Regulation Authority but is a member of the National Association of Funeral Directors.

The life insurance policy that pays for your funeral will be provided by Phoenix Life Limited, trading as SunLife.

Who provides My Smarter (ISA)?

My Smarter (ISA) is provided by Scottish Friendly Asset Managers Limited. Authorised and regulated by the Financial Conduct Authority. Details can be found on the Financial Services register, registration No. 188832. Member of The Investment Association. Registered Office: Scottish Friendly House, 16 Blythswood Square, Glasgow G2 4HJ.

Who provides the Will writing services?

Hugh James is authorised and regulated by the Solicitors Regulation Authority (SRA Number:303202).

The information contained on this website is based on Hugh James' understanding of the law of intestacy in England and Wales only as at April 2014. The law in Scotland and Northern Ireland is significantly different. This is for information purposes and is not intended to be legal advice.

Who provides Family Life Insurance?

SunLife Family Life Insurance is provided by Scottish Friendly Assurance Society Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Details can be found on the Financial Services register (registration number 110002). Registered Office: Scottish Friendly House, 16 Blythswood Square, Glasgow G2 4HJ. 

Who provides SunLife Pet Insurance

SunLife Pet Insurance is arranged and administered by BDML Connect Limited. BDML Connect Limited is authorised and regulated by the Financial Conduct Authority (No. 309140). Registered in England and Wales Number 02785540. Registered Office: 45 Westerham Road, Bessels Green, Sevenoaks, Kent, TN13 2QB.

Who provides SunLife Home Insurance

SunLife Home Insurance is arranged and administered by BISL Limited and underwritten by a panel of insurers. BISL Limited are an intermediary authorised and regulated by the Financial Conduct Authority. Registered in England no. 03231094. Registered office Pegasus House, Bakewell Road, Orton Southgate, Peterborough PE2 6YS.

Who provides SunLife Car Insurance

SunLife Car Insurance is arranged and administered by BISL Limited and underwritten by a panel of insurers. BISL Limited are an intermediary authorised and regulated by the Financial Conduct Authority. Registered in England no. 03231094. Registered office Pegasus House, Bakewell Road, Orton Southgate, Peterborough PE2 6YS.