How much equity can I release from my home?


Nov 19, 2014
How much equity can I release from my home?

For the majority our home is probably our largest asset which is why, regardless of whether they have repaid their mortgage or not, an increasing number of people in the UK are choosing to release cash from their property.

To qualify for an equity release loan you need to be at least 55 years of age, which means you could either be approaching retirement or already retired; looking to release funds as a way to bolster your income or perhaps take a lump sum that will help make life that little bit easier. 

So how much equity can you release from your home?
As releasing equity from your home involves you taking out an equity release mortgage, it is not a decision that should be made lightly and should be considered as part of your overall financial planning needs; after all if you have access to cash through savings and investments, it could make sense to consider using these funds first.

Typically lenders currently charge around 6% on the amount of cash you release and will usually let you borrow up to 50% of your property value as either a cash lump sum or income, however according to Key Retirement the UK’s largest provider of equity release loans, the average equity release loan is around 35%.

The maximum amount you can borrow will be determined by a combination of your age and property value; usually the older you are the more you can borrow.

For example
Your property value is approx £250,000
You are aged 60
You could borrow between £63,750 to £72,500

How does equity release work?
Releasing equity is another name for releasing cash from your property; commonly referred to as an “equity release loan” or a “lifetime mortgage”. Unlike a conventional mortgage however you make no payments once the loan is in place; instead the interest charged by the lender is added to the original amount of cash you borrowed, so every year your outstanding balance will increase.

The only time the amount outstanding is repaid is either when you sell the property (if you move home you can transfer the mortgage subject to the same terms and conditions) or when you die and the property is sold as part of your estate.

If the lifetime mortgage is in joint names and one of you dies, the other will of course remain in the property.


Releasing equity from your home is fairly straight forward procedure providing you receive advice from reputable, qualified experts on the best options based on your own individual needs.  

Before you make enquiries it can be helpful to use one of the free equity release calculators on the market which are quick and easy to use and will give you a feel for how much you could borrow.

Once you have applied, your property will be valued by the mortgage company and you will need a solicitor to make sure that all the paperwork is in order; your solicitor will also make you aware of your commitment. 

Once the lifetime mortgage is in place you will receive the cash sum in your bank account and each year will receive an annual statement showing how much you have borrowed and how the interest in accumulating on the account so you can keep track of the total amount outstanding.

Risks & Concerns
The hope with equity release is that at the same time the loan is increasing, house prices are also rising however it’s worth pointing out that these days, all Lifetime Mortgages come with a guarantee that the amount outstanding will never be more than the value of your home. 

The biggest concern most people have is that by the time they die, there will be no equity left as it will be eaten up by the interest charges, leaving very little or nothing to the family; so the million dollar question is how long will we live and what will happen to house prices over that same period?

Let’s take a look at an example

Your property is worth £250,000
You release £50,000 cash with an equity release loan
You die after 15 years by which time the loan will have grown to £123,000
If house prices increase by 5% pa, the value of your house will have increased to £528,000 
Therefore you will leave £405,000 of equity to your beneficiaries

Is releasing equity from your home right thing to do?
Providing you have thought everything through, taken professional advice and discussed everything with your family, an equity release loan can give you a cash sum or income that could lead to a happier retirement.

Only you know the answer to this question!


Ashley Shepherd is an Over 50s Personal Finance Expert

ashley shepherd

Don't miss out...

Sign up to our monthly newsletter for the latest updates.

Subscribe

Our Trusted Partners

over 50 life insurance    funeral plans   equity release   health insurance      best energy deals   over 50s car insurance  making a Will