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Equity release allows UK homeowners aged 50 and over to withdraw tax-free cash from the value of their home. Lifetime mortgages are the most popular equity release plan.

The amount borrowed is calculated using the age of the youngest applicant and the value of your property. Health conditions and postcode of your property can also affect the loan size.

The FCA stipulate that equity release advice is mandatory and you will require your own adviser and legal representative.

A fixed rate of Interest is charged by the lender over your lifetime. Payments to the lender are optional and will determine your future mortgage balance.

The money released is paid into your bank as a one-off payment, or a series of ad-hoc cash lump sums called drawdown.

Finally, the lender places a first legal charge on your property as security.

The amount of equity release you can borrow depends on the type of scheme, your age and property value. We advocate you only take as much money as you need to keep interest rates to a minimum.

A lifetime mortgage starts with a minimum loan of £10,000. At age 55, you can release upto 33% of your property value, and can be upto 60% by the time you reach the age of 83. With home reversion schemes, the minimum loan starts at £25,000 and you can sell upto 100% of the value of your home at a discounted rate.

Retirement Interest Only mortgages (RIO’s) start at age 50 and are very similar in borrowing capacity as a residential mortgage - as they are affordability based. Therefore, your pre & post retirement income and credit record will determine the maximum release with a RIO.

To get a quick estimate, try our Equity Release Calculator.

UK equity release schemes are safe as they are fully regulated by the Financial Conduct Authority (FCA) and all our advisers are members of the Equity Release Council – the industry’s trade body who insist that a strict code of conduct is mandated.

Features of modern day equity release schemes ensure the homeowner has full protection.

Firstly, a no negative equity guarantee ensures beneficiaries can never end up owing any money to the equity release company over and above the sale value of the property.

Additionally, for joint applicants, you can opt for a 3-year no early repayment charge (ERC). This means you can pay off the loan following the death or long term care of a partner, within 3 years – all without penalty.

To qualify for equity release you must meet the following criteria:

• - You’re a UK resident age 55 and over.
• - You own 100% of your residential property.
• - Your property has a minimum valuation of £70,000.

If you have a mortgage, this will need to be repaid before, or on completion of your plan – this can be either by using your own source of funds, or from the proceeds of the equity release itself.

For your property to qualify for equity release, it needs to be your main residence and located in England, Scotland, Wales, or Northern Ireland.

It will usually need to be of standard construction and have a minimum property value of £70,000. Lenders have different maximum property values, but commonly upto £1m is achievable. Companies such as Aviva, have an unlimited maximum property value ceiling.

Both freehold and leasehold houses are acceptable, whilst providers will only allow lending on leasehold flats and maisonettes. Lease terms should be long enough to meet lending criteria which is usually over a minimum of 75 years.

There should be no constraints on usage of the property for residential purposes and unusual features such as annexes, large acreage, trusts, non-standard build types etc we would usually require a lender referral.

Any costs associated with equity release are born out of set-up fees, the lenders monthly interest charged, advice and finally any exit fees.

Equity release set-up costs could be both an application and valuation fee - however in 2022 most lenders do not charge these upfront fees. They do charge monthly or annual interest which is added to the loan and compounds.

To process an equity release application you will need specialist advice from your equity release adviser and solicitor for which you shouldn’t be charged until the money is in your bank.

Finally, there could be an early repayment charge (ERC) should you pay off your equity release plan early, plus a closing admin fee when the lender shuts down your account.

Find out more about the fees and charges for equity release.

The most popular equity release plan is a lifetime mortgage where you retain 100% ownership of the property and benefit from any escalation in future house prices.

These plans have a lifetime fixed rate of interest, and the option to guarantee a percentage of your property value to your beneficiaries upon death.

Money released is tax-free and can be spent on whatever you wish. The initial payment can be a lump sum, or series of payments over time called drawdown. You may also have the option to borrow additional funds in the future.
Taking equity from your property will leave a reduced inheritance should you make no repayments, as your interest will be added to your balance and compounded over time.

If you currently claim means-tested benefits, then these could also be impacted if you release equity. Should you exit your equity release plan early, you may incur an early repayment penalty.

Find out more about the things to consider and pros and cons of equity release.

Although equity release starts at age 55, you are always best deferring releasing equity for as long as possible - until you actually need it.

Taking equity release at age 55 has two consequences – firstly the older you are the more you can borrow. Secondly, the longer you defer taking it, the less time it has to accrue interest - resulting in a lower future balance.

You can still take equity release out at 100 years of age, although this is limited to only certain lenders. In summary, a balance between the necessity of taking funds and not starting too early is always advisable.

All lifetime mortgage schemes that Equity Release Supermarket advise on are covered by the Equity Release Council (ERC) standards. Under these rules you can repay your lifetime mortgage at any time, however any settlement could be subject to early repayment charges.

Another ERC rule is that all plans are portable to a new property – as long as it meets the lenders property criteria. If the new property you’re transferring to is of lower value, and your existing balance does not fit within its maximum loan parameters, you can reduce the balance without penalty to fit the new properties maximum loan criteria.

Equity release will not affect your eligibility for basic state pension, nor will it reduce the amount you would receive from building up your basic state pension entitlement.

It can however affect any means tested benefits you may be eligible for - hence it’s always important to get specialist advice in this area before applying for equity release.

Equity release interest rates are fixed for the lifetime of your loan. The rates vary between lenders and their products. Historically interest rates are much lower today than they were a decade ago, and have more flexible features.

As a guide, the higher the percentage of the loan borrowed against the value of your house (LTV) – the higher the interest rate will be. This is down to risk for the lender. Therefore, a 50% LTV equity loan will usually attract a higher interest rate than a 25% LTV.

To find out what interest rate you would get for a specific loan amount – visit your personalised research tool - smartER.

Equity release is a lifetime mortgage that usually runs until the last homeowner has died or moved into long term care. At that point the property is sold, and the proceeds used to repay the equity release balance outstanding.

During the term of the loan, you can make voluntary repayments back to the lender - without penalty in order to control the future balance, thus mitigating the effect of interest compounding.

You can also repay the equity release loan in full at any time. This could be upon receipt of a windfall, sale of property or using savings/investments. It should be noted that early repayment charges could apply and last for a minimum of 8 to 15 years from inception.

There is no requirement to make any payments on an equity release scheme – it’s entirely optional.

However, not making any monthly payments will result in the interest charged by the lender being added to the balance and compounding over your lifetime. This is interest being charged on interest.

All lifetime mortgage plans now have the option of making voluntary payments. This means anywhere between 10% and 40% of the original amount borrowed can be repaid to the lender every year.

The benefit of repaying the interest charged on a monthly basis is that you would maintain the same level balance for as long as payments are maintained.

For single life equity release plans, should you die or move into long term care, the lender will usually allow your estate upto 12 months to repay the mortgage balance. This is usually from the sale proceeds and incurs no early repayment charge.

For joint life plans, there are no changes to the equity release scheme upon death or move to long term care of the first person. The plan will continue in the survivor’s name and will only then be repaid should they subsequently die or move into care.

With equity release there is no one size fits all. All homeowners have different requirements, hence it’s important to get specialist whole of market advice from a broker such as Equity Release Supermarket offering impartial equity release advice.

If you are looking to conduct your own research, prior to engaging an adviser, then feel free to use the equity release industry’s first ever consumer research tool -smartER.

In your own time, after adding your personal details and requirements, smartER will present every equity release deal that you are eligible for along with the exact interest rate and product specifics. Get smartER today!