Is equity release a good idea?

What is equity release?

Equity release is a process that gives you access to cash that’s tied up in your home. You must be 55 or older to release equity and can do so as a lump sum, in a series of smaller amounts, or a combination of the two. The amount you can release depends on your age and the value of your home. You can release equity through either a lifetime mortgage or a home reversion plan.

Should I consider equity release?

Equity release is potentially worth considering if you are 55 or over, would like a more comfortable retirement and own your own home. But every person’s circumstances are different and you might want to take a close look at your financial situation first, before deciding if equity release will meet your needs.

The most common way to release equity is through a lifetime mortgage. This isn’t paid off until you either die or go into long-term care. If you have nobody to leave assets to it could be a good option for you. But if you do have family to pass assets to, it’s worth considering you may be leaving them with less inheritance.

On the other hand, you may want to release equity to gift to family members before you pass away. This could be helpful for supporting grandchildren through university, for instance, or if they want to get on the property ladder.

What are the advantages of equity release?

Equity release offers many benefits and flexibility over your options, making it a popular choice when it comes to raising funds for retirement. With equity release:

  • You can take a lump sum of tax-free cash.
  • You can remain in your own home.
  • No-negative equity guarantee means you or your estate will never owe more than the value of your home when it’s sold.
  • You can protect a percentage of your house’s value for loved ones.
  • You may be able to move home in the future.
  • Make partial repayments over the life of the mortgage, early repayment charges may apply.
  • You can spend the cash on improving quality of life, or achieving bigger goals.

The main advantage of equity release is the ability to access cash now. If the value of your home has increased over the years, you may want to take advantage of the opportunity to spend in a number of ways.

  • You could make improvements to your home or garden, for example a new conservatory or kitchen renovation.
  • You might want to give financial help to loved ones.
  • You could take an extended holiday or travel.

Additional considerations of equity release

Equity release, like any major financial consideration, shouldn’t be rushed into without prior thought. Here are some things to bear in mind before you decide to go ahead.

  • Your eligibility for means-tested state benefits such as Pension Credit could be affected.
  • You would be borrowing further against your property, which could affect any inheritance you want to pass on to family.
  • Should the value of your home drop, the percentage that you own will be worth less.
  • As the loan balance increases, you could end up owing the full value of the property.
  • You still have to pay the bills on your property, including utilities and council tax.

You may choose to release equity through a home reversion plan, rather than a lifetime mortgage. If you’re 65 or older, home reversion plans let you sell all or a part of your property to a reversion company. You do so at less than the market value, in return for a tax-free lump sun, a regular income, or both. You remain in your home as a tenant but pay no rent.

Are you eligible for a Scottish Widows Bank Lifetime Mortgage?

Equity release is a big financial commitment, so whoever you borrow from will have a set of criteria you must fulfil. Usually you must meet all the criteria:

  • Lifetime mortgage applicants should be at least 55 years of age.
  • Home reversion plan applicants must be 65 years old or over.
  • The property must be worth at least £100,000, or £150,000 for some property types. Some lenders will have a maximum value in order to protect against risk.
  • You can apply on your own or make a joint application with a partner or spouse.
  • You should be applying to release equity from your main property.
  • You must own the property in question.
  • Your home must be in England, Scotland or Wales. Only a small number of lenders don’t currently cover Northern Ireland properties.
  • The property should be in good condition.

What does equity release cost?

There is also the price of equity release to think about. What you might end up paying depends on the product, the provider you pick, the extras and add-ons. Here are some of the associated fees that come with equity release.

Interest rates – Interest varies according to your age, property value and the percentage you want to release. With lifetime mortgages, interest is ‘rolled up’ into the balance. Although the rate would be fixed, the amount you owe could grow significantly.

Solicitor fees – As equity release may have an impact on your estate, you will need independent legal advice to ensure you understand any implications.

Valuation fees – A lender will ask for a valuation so they can estimate the amount you can borrow.

Advice fees – This can vary and sometimes there is no fee. It’s usually not payable until the funds get released.

Equity release FAQs