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What is Equity Release?

Last updated 25th June 2019

Equity release is a way to access some of the money tied up in the value of your home without having to move house.

There are different plans that allow you to release this cash, either by taking out a loan secured against your home, or selling a part or all of your home.

With either plan you get to stay in your home until you die or move into permanent care.

Depending on the plan, you can release the money as a lump sum or in instalments, and it’s up to you how you spend it. So, if you find yourself with equity in your home but limited cash to live as you’d like, it can be a solution.

The money you release will need to pay off any outstanding mortgage first. The rest is yours to spend as you wish, for example on home improvements or to help your family with their future.

It’s a tax-free sum you can use however you like.

Now you know what equity release is, here’s a simple introduction to the most popular schemes in the UK today.

What is ‘equity’?

The equity in your home is the market value of your property minus any outstanding mortgage or other debt secured on it.

Over the years, property values in the UK have risen. So, if you bought your home some time ago, you could now find yourself with a decent 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

You can usually release somewhere between 20% and 50% of the equity in your home. The exact amount will depend on your age and personal circumstances.

Equity release calculator tool thumbnail
How much equity could you release?

Find out in seconds how much tax-free cash you could unlock with our free online Equity Release Calculator.

Types of equity release

There are two main ways to release the equity tied up in your home without having to move.

You can either borrow money against the value your house with a lifetime mortgage, or sell all, or part of, your home through a home reversion scheme.

Equity release calculator: Model of house on top of a calculator

What is a lifetime mortgage?

A lifetime mortgage is a loan for an agreed amount of tax-free money secured against your home. It is available to UK homeowners aged 55 and over.

You continue to own the property and don’t make monthly repayments. Instead the money you borrow and any interest accrued is paid back when you die or go into residential care. If there is any money left over once the loan has been repaid, this will go to your estate.

Lifetime mortgage important considerations

House price fluctuations

As house prices fluctuate you can’t predict how much, if any, of your home’s value could go to your estate. If this is a concern, look for lifetime mortgages that guarantee an inheritance for your family.

Interest

Lifetime mortgages usually have a fixed rate of interest, although products with a variable rate are available.

Interest can build up quickly because each year interest compounds or is ‘rolled up’. This means each year interest is calculated based on the loan amount plus the interest added in previous years.

In other words, you pay interest on the interest. Some lifetime mortgages do let you pay off some of the interest each month. Learn more about lifetime mortgage interest rates.

Early repayment

If you decide to pay off the loan early, you may incur large early repayment charges.

Types of lifetime mortgage

There are different types of lifetime mortgage and a range of features to choose from including:

  • Drawdown – Allows you to take the cash in stages as it suits you
  • Enhanced – Allows you to release more money from your home if you have a qualifying health condition
  • Protected – Guarantees an inheritance for your family
  • Combined – A combination of these options to tailor your plan to current and future needs
  • Interest payment plans – Pay off some of the interest that builds up over the lifetime of the loan
Equity release symbol: model house covered in pound signs

What is a home reversion scheme?

A home reversion scheme lets you sell part or all of your home in return for a tax-free lump sum or a regular income. It is available to homeowners aged 65 and over.

The price the scheme provider pays is below market value because you also get the right to stay in your home. Your right means you can live there rent-free until you die or move out permanently.

When this happens, your home will be sold and you or your estate will receive the value of your share. This will be the amount your home sold for minus the share you sold to the equity release provider originally.

This means you’ll know exactly what percentage of your home’s value will be left to your estate on your death.

Home reversion scheme important considerations

House price fluctuations

If the value of your home has risen by the time it is sold, you or your estate will only benefit from the increase in your remaining share of the property.

Early sale

You may lose out on the benefits of living rent free if you die or move out permanently soon after taking out a home reversion plan. However, some plans do provide some protection against this.

What’s the difference between the two schemes?

There are two major differences between a lifetime mortgage and a home reversion plan:

Home ownership

With a lifetime mortgage you still own 100% of your home. With a home reversion scheme, you don’t because you sell all or part of your home.

Interest payable

With a lifetime mortgage, compound interest builds up over the years. This increases the amount owed when the property is eventually sold.

With a home reversion scheme, there is no interest to pay or repayments to be made. The provider allows for interest in the price they pay for the share you sell them, and you continue to live in your home rent-free.

All types of equity release product will reduce the value of your estate and could affect your eligibility for state benefits.

Is it regulated?

Equity release schemes, providers and advisers are regulated by the Financial Conduct Authority. The products themselves also offer assurances to the customer.

Most providers are now members of the Equity Release Council and abide by its standards and principles.

This includes a ‘no negative equity guarantee’, which makes it impossible to ever owe more than the value of your home. It also gives you the freedom to transfer your scheme to another property without penalty.

Always check the ERC register, to make sure the person or company you’re dealing with has signed up to this industry body’s code of practice.

Equity release advice: Mature couple looking at a laptop with an adviser

What to think about

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.

There’s a lot to consider, so it’s important to get professional advice. This can be from a specialist adviser, a solicitor or both to help you decide if it’s the right option for you.

If you’re wondering if equity release is safe, or looking to find out how much it costs, our in-depth articles will be able to help.

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

Use our Eligibility Checker or call The SunLife Over 55 Equity Release Service today on 0800 633 5566.

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). 

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, Dignity Funerals Ltd arranges and provides the funeral services, registered office: 4 King Edwards Court, Sutton Coldfield, West Midlands, B73 6AP (registered in England and Wales, No. 00041598). Dignity Funerals Ltd is a member of the National Association of Funeral Directors.

Who provides the Funeral Plans?

Dignity Funerals Ltd arranges and provides the funeral services, registered office: 4 King Edwards Court, Sutton Coldfield, West Midlands, B73 6AP (registered in England and Wales, No. 00041598). Dignity Funerals is not authorised or regulated for this activity by either the Financial Conduct Authority or the Prudential Regulation Authority. Dignity Funerals Ltd 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 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.