Equity release can be a useful way to unlock money tied up in your home, without having to downsize or sell all or part of your property to a provider (known as a home reversion).
For some homeowners, it can offer greater financial flexibility in later life, whether that involves supplementing retirement income, helping loved ones financially or funding care requirements. However, equity release is a long-term financial commitment and may not be suitable for everyone.
In this article, we explain how equity release works, who may be eligible, the types of products available, the benefits and potential drawbacks involved, and why professional advice is essential before proceeding.
What is equity release?
Equity release is the process of converting part of your property’s value into usable tax-free cash. These funds can be used to support your financial needs in later life, with arrangements generally being structured to align with long-term retirement planning.
As with any long-term financial decision, equity release is not suitable for everyone and can affect future finances, including inheritance. Understanding how it works and how it fits into your wider plans is an important part of deciding whether it is right for you.
Who is eligible for equity release?
Eligibility and criteria will vary between lenders. However, you will typically need to meet the following requirements:
- Aged 55 or over.
- Own a property in the UK.
- Your property must meet the lender’s condition and construction standards.
- Have little or no existing mortgage (or be able to clear the outstanding mortgage balance using the released funds).
How much equity can I release?
Typically, you may be able to release between around 20% and 50% of your property’s value, although this can vary depending on several factors.
The exact amount will depend on:
- Your age (older applicants tend to be able to borrow more).
- The value of your property.
- What type of property you own and where it is located.
- If the property has any unusual features (e.g. some lenders may not lend against properties with thatched roofs or ones on flood plains).
- The type of equity release plan you select.
- Your health and lifestyle (in some cases, enhanced plans may be available).
What types of equity release are available?
Equity release products generally fall into two main categories:
Lifetime mortgages
Lifetime mortgages involve taking out a loan secured against your home while you retain full ownership of the property. The amount you can borrow will depend on factors such as your age, the value of your property and the lender’s criteria, but it is usually a percentage of your property’s value (typically between 20% and 60%).
The value released can usually be taken as a lump sum, in small withdrawals overtime, or a combination of both. The loan, along with any interest accrued, is usually repaid when the property is sold, which tends to happen when you either move into long-term care or pass away.
Home reversion plans
Home reversion plans involve selling a percentage of your home to a lender in exchange for a tax-free lump sum, or in some cases, regular payments. However, you retain the right to live in your home rent-free for the rest of your life or until you move into long-term care.
The amount you receive is typically based on the proportion of the property sold and its market value at the time. When the property is eventually sold, the lender will receive their agreed share of the proceeds based on the percentage of the property they own. If the property increases in value, the lender’s return will also increase.
Select home reversion plans are portable, meaning you may be able to move home and transfer the arrangement to another suitable property. However, this will depend on the lender’s terms and whether the new property meets their lending criteria.
Why might you consider equity release?
People consider equity release for many different reasons, often as part of a wider financial plan. This might include:
- Bridging the gap between retirement and pension income.
- Supporting family members financially.
- Purchasing an additional property (in some circumstances).
- Funding lifestyle goals later in life.
Understanding why you want to release equity, and how it fits into your longer-term plans, is an important first step.
Our specialist mortgage advisers can help you understand the options available to you and establish what products may be most suitable for your personal circumstances.
Our Senior Later Life and Protection Adviser, John Harris, commented:
“With the emergence of AI, clients over the age of 55 have more access to information regarding later life lending than they have ever had. In minutes, a client can find out what they could potentially borrow and what headline rates are being offered; however, there is no ‘one size fits all’ approach with Equity Release.
Every client’s situation is unique, and it’s vitally important that a professionally qualified adviser helps every client truly understand their options and the impact (both positive and negative) of their financial decisions.”
What are the benefits of equity release?
Equity release can offer several advantages when used appropriately:
- Access funds without having to sell or downsize your home.
You can unlock value from your home while continuing to live in it.
- No required monthly repayments.
Most lifetime mortgages do not require ongoing repayments, helping reduce pressure on retirement income.
- Security for joint borrowers.
If one spouse passes away or moves into long-term care, the remaining borrower can typically stay in the property.
- Potential benefit from increases in property value.
Lifetime mortgages allow you to retain full ownership of the property. Meaning you may benefit from any future increases in property value.
- Greater financial flexibility.
The funds can be taken as a lump sum, drawdown, or as a regular income, depending on your needs.
- Built-in consumer protections.
Select equity release products include built-in safeguards, such as a no negative equity guarantee. This means you or your estate will not owe more than the value of your property when it is sold.
What are the key considerations?
While equity release can offer several potential benefits for homeowners later in life, it is also important to understand the potential implications before proceeding.
- Cost and compounding.
For lifetime mortgages, interest is typically added to the loan which over time, can significantly increase the amount owed.
Interest rates for lifetime mortgages tend to be higher than standard mortgage rates, which currently average between 6% to 8%.
Conversely, home reversion plans do not charge interest but involve selling a share of your property, often below full market value.
- Fees.
You may incur advice, legal, valuation, and arrangement fees, typically ranging between £2,000 and £3,500 depending on the product and lender.
- Existing mortgage.
If you have an outstanding mortgage, it will typically need to be repaid before an equity release arrangement can proceed.
In some instances, part of the funds released can be used to clear the outstanding mortgage balance as a requirement of the arrangement.
- Impact on inheritance.
Releasing equity is likely to reduce the value of your estate. The extent of this will depend on how much is released, how long the plan runs, and future property values.
Professional advice is essential to fully understand these factors and how they apply to your personal circumstances.
- Lifestyle limitations.
Restrictions may apply, such as not being able to use the property as a holiday let, leaving it unoccupied for extended periods, or making large structural changes.
Is equity release right for me?
Equity release may not be suitable for everyone. Whether it is an appropriate option will depend on a range of factors, including your personal circumstances, financial needs, and long-term planning objectives.
Before proceeding, it is important to consider alternative options that may better support your long-term goals and personal circumstances, such as:
- Downsizing to a smaller property.
- Utilising available savings or investments.
- Exploring remortgaging options.
Seeking advice from a qualified equity release specialist is an essential part of the process. A professional adviser can help you understand the options available, assess whether equity release aligns with your financial plans, and ensure any decision you make supports both your current needs and long-term objectives.
How can Cooper Associates Mortgages help?
Equity release is a significant, long‑term financial commitment that can influence both your future financial stability and the value of your estate.
Our specialist advisers provide bespoke, holistic advice and will take the time to understand your circumstances, explain your options clearly, and help you explore what this could look like for you before any decisions are made.
Get in touch today to arrange a fee‑free, no‑obligation consultation and review your equity release options today.
