Equity Release - All you need

What is equity release?
How does equity release work?
How much equity can I release?
What types of schemes are there?
What are the pitfalls?
Which is the best equity release scheme?

What is Equity Release?

Equity Release, or Lifetime Mortgage as it is also known is a tax free way you can unlock some of the cash tied up in your home. The money can be released either in one go, or you can ‘drawdown’ smaller amounts as and when required.

Currently one of the most popular reasons for releasing equity throughout the UK is for home or garden improvements, but homeowners also turn to lifetime mortgages to pay off existing debts or mortgages, for holidays, to help family get a foot on the housing ladder or to improve retirement funds by supplementing their pension pot.

What appeals to many about a lifetime mortgage is that there are no monthly repayments; instead the equity loan is paid back once you have died or moved into care and the house is sold. As a result though, equity release interest rates are higher and will of course affect any inheritance you were planning on leaving to family.

But with a staggering £9.5 million of equity currently being released every day and £1.7 billion throughout the first 6 months of 2018; demand for equity loans is growing as people start to view it as part of their financial planning for later life.

For more information on plans, read our what is equity release? article.

L&G Hodge Lifetime Aviva canada life pure retirement

How does Equity Release Work?

The 'equity' in your home is the difference between its value and any outstanding loans secured against it, such as a mortgage. Since 1974, property prices have roughly doubled every 10 years, which is why for many, their home is their greatest asset.

A loan is secured against your property in return for a tax free cash lump sum. You continue to own your own home with no monthly repayments and on approval from your equity release provider and subject to their terms and conditions, you still have the flexibility to move.

The original loan plus interest is only repaid once you have either died, or moved into long term care and the house is sold.

Read more about how does equity release work

How much equity can I release?

How much equity you can release will depend on the value of your home and your age but the maximum is typically between 20% to 50% of the property value. The average equity loan throughout the UK is currently £78,000 but this varies as you would expect by region.

To qualify for an equity release scheme you must be at least 55 years of age, living in the UK or Northern Ireland and your home should be worth at least £60,000.

Our Equity Release Calculator will help you understand more about how much money you could unlock from your home.

The older you are, the more money you can release and you can still apply for an equity loan if you have an outstanding mortgage on the property; you just need to use the cash you have released to pay off the loan first.

Could equity release be right for you?

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What types of schemes are there?

If you are considering unlocking the cash tied up in your home and want to compare equity release plans, there are two options available that let you release equity but remain living there; namely a home reversion scheme and the more popular lifetime mortgage.

Lifetime Mortgage - A Lifetime Mortgage works in a similar way to a normal mortgage in that it is a loan secured on your home; the difference being that you don’t have to make any monthly repayments. Instead the interest builds up over the years and is only repaid when the last surviving plan holder dies or moves into long term care.

Home Reversion - Home reversion plans are not loans and therefore work differently to a Lifetime Mortgage. With a Home Reversion Plan, you agree to sell all or part of your home in return for a lump sum of money.

As a result there is no interest to pay however, as the value of the property increases, you only benefit from the increase on the percentage of the home that you still own.

It’s worth keeping in mind that home reversion companies are more likely to offer you less than the actual property value as they are taking on the risk of unknown future property prices. As a result their initial calculations are usually based on a property price that is lower than the market value.

When the property is sold upon the last survivor’s death (if joint) or because they’ve move into a care home, the home reversion company will receive their share of the proceeds.

What are the pitfalls?

Importantly lifetime mortgage and home reversion plans are regulated by the Financial Conduct Authority (FCA) which means there are safeguards in place to protect you; therefore there are no pitfalls as such. Having said that, taking out an equity loan is a big decision and one that could affect your family and any benefits you may receive, so it does require careful consideration.

In addition to the Financial Conduct Authority controls, most providers are also members of the Equity Release Council, which sets the standards for equity loans including a ‘No Negative Equity’ guarantee.

This guarantee ensures that once the property is sold and the solicitors and agents fees have been paid, if there is insufficient money remaining to pay the outstanding equity loan, neither you, your family or your estate will be liable to pay any more.

In addition, the Equity Release Council (ERC) also stipulate that members allow homeowners:

The right to remain in their home for life or as long as they choose
The flexibility to move to another property without financial penalties

Over50choices is also a member of the Equity Release Council and authorised by the Financial Conduct Authority.

So whichever provider you choose, make sure they are members of the ERC (you can use the find a member portal on their website) so you have complete reassurance that your chosen equity release scheme is safe and that you are covered by the No Negative Equity Guarantee.

What are the Pros and cons of releasing equity from your home?

Which is the best Equity Release Scheme?

If you are considering a lifetime mortgage then you could start by using our equity release calculator which will give you an idea of how much money you could potentially release, based on the value of your property and your age.

It may also be worthwhile taking time to seek professional advice so you can decide whether equity release is a good idea for you.

Having reviewed the market, we have teamed up with leading award winning specialist, Age Partnership. It’s important to note that Age Partnership compare equity release plans across the whole of the market, not just individual companies and because of their prominent position, have agreed preferential rates with leading lenders which may not be available elsewhere.

Simply use the equity release calculator or click on one of the ‘Get a Quote’ buttons and a qualified adviser from Age Partnership will contact you for an initial chat to understand your requirements and establish whether a lifetime mortgage is a worthwhile option based on your needs. There is absolutely no obligation or charge for this initial discussion, so please do ask as many questions as you wish.

Your equity release questions answered

Is equity release safe?

Lifetime mortgage and home reversion plans are regulated by the Financial Conduct Authority (FCA) so you are protected by their rules and safeguards. In addition all of the providers recommended by our partner, Age Partnership, are members of the Equity Release Council, the industry body which sets the standards for equity release schemes; the main ones being that you have a home for life and that you will never owe more than more than the value of your property.

Will I still own my own home?

Yes, ownership of the property remains with you and you can live in the property for the rest of your life.

Will my state benefits be affected?

Releasing equity from your home could impact your state benefits. Your Age Partnership adviser will go through all of this with you so you can establish whether an equity loan is a good idea for you.

How much equity can I release from my home?

This will depend on the value of your property and your age; for a quick guide you can use the equity release calculator.

Can I move home in the future?

Yes, you can move home with an equity loan subject to the provider’s scheme rules. All members of the ERC must offer schemes that allow flexibility to move without facing financial penalties.

Is releasing equity right for me?

Although a useful way of freeing up cash or helping fund retirement, releasing equity is a big decision and not right for everyone, as there may be other options available like choosing to downsize. The specialist advisers at Age Partnership are fully qualified to help assess your needs, so you can establish for free whether a lifetime mortgage is the right option for you.

Will there be any monthly payments?

No there are no monthly repayments required; instead the original loan plus the interest accrued is repaid once you have died or moved into care and the house is sold.

Having said that, there are certain lifetime mortgages available that allow you to make regular repayments on the interest – it just depends on the type of plan you choose.

How much does it cost to arrange an equity release mortgage?

Getting quotes, using the calculator and speaking to an adviser will not cost you anything.

There is no charge for phone calls or home visits.

The only charges you pay are when you proceed and complete the agreement and the money is in your bank account. Age Partnership typically charge 1.95% of the money being released plus you will also need to also pay your solicitors fees.

Will my family be left with my debts?

No, when the property is sold your outstanding balance will be repaid to the equity release provider and any surplus paid to your family/estate. In the event that you owe more than the property is worth, your family will not be asked for any money, as all plans come with a no negative equity guarantee.

What happens if I have to go into care?

Should this happen and you have a partner/spouse living in the property then the will continue to do so. If you live alone and are unlikely to return then the property will be sold and the provider repaid and the balance returned to you; your family will be consulted at all times.

Which equity release providers do you recommend?

Our partner, Age Partnership, work with the following leading providers:

Legal & General
Canada Life
Just Retirement
Hodge Lifetime
Aviva
LV
Pure Retirement
One Family

They will review the whole market and providers on your behalf

Can I apply if I still have a mortgage outstanding on the property?

Yes, although this will need to be repaid from the new equity release mortgage. Our advisers can advise you on this.

How long will it take to apply?

Applying is simple and your adviser will help you with this once you have decided to proceed.

Once you have applied it typically takes around 6 to 8 weeks to get all the legal paperwork and mortgage in place.

I'm not sure what to do or where to start!

Don't worry, you are not alone.

Releasing equity from your home can seem quite daunting, but the specialists at Age Partnership are here to help. They will not talk financial jargon at you but instead they will hold your hand all the way through the process, help you compare equity release plans and answer any questions you may have or concerns.

To start, why not use the equity release calculator to see how much you could borrow, if you're not sure of your property value just take a guess, it doesn't matter as we can help you with this.

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