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What is equity release?

Equity release is a way for older homeowners to access some of the money (the equity) that is within the value of their home.


In this guide

What are the pros and cons of equity release?

The different types of equity release plan

What is a lifetime mortgage?

What is a home reversion plan?

Things to consider before applying for equity release

Here’s an example of how equity release could work for you.

If you bought your home 30 years ago, the average house price was £62,782*. That same house is now worth £216,805. If your home is now mortgage free, you have £216,805 of equity in your home.

(* Nationwide House Price Index. Q3 2019)

Equity release allows you to access some of this equity as tax-free cash and the amount you can borrow depends on the value of your home, how old you are and where you live.

Equity release comes in two forms, lifetime mortgages and home reversion plans.

With a lifetime mortgage, the most common type of equity release plan, there are typically no monthly repayments to make. Your equity release plan is only repaid through the sale of your property when you die or move into long-term care.

If you are over the age of 55 and a homeowner, you are probably eligible to take out an equity release plan. The money you release is yours to spend on what you want. Popular choices are home improvements, repaying debts, helping children on to the property ladder or simply enjoying later life.

The main downside of equity release is that it will reduce the value of your estate, but there are ways to minimise this by using the features that many plans now offer.

Are you thinking about retiring or reducing your hours at work? Do you want to maintain your lifestyle, or do you have big plans for the future?

If you do, then you’ll appreciate just how important it is to have the money in place to enjoy financial freedom - and not have to worry about how you are going to pay for things.

However, if you don’t have a substantial pension pot or savings in place, living comfortably in your later years could be easier said than done.

This is where equity release can help.



What are the pros and cons of equity release?

The advantages

Financial freedom

At Equity Release Supermarket, no one tells you what you can or can’t do with your money. Whether you want that new kitchen or holiday you’ve always dreamed of, or want to help your children buy their first home, it’s up to you how you spend your cash. Your money is tax-free and what’s more, you can take your money as a single lump sum, in several smaller chunks as regular income giving you more flexibility.


Flexibility

One of the most popular reasons people choose an equity release plan is because they are so flexible. For example, if you take out a lifetime mortgage, what you use your money for is entirely your decision.

It’s also possible to release your money as and when you need it via a drawdown scheme, rather than in one lump sum.

Moreover, you can reduce the amount of interest accrued in the long term by releasing less equity, less frequently or, if your income allows, you can make regular or one-off capital repayments.


No need to downsize

Equity release means you don’t have to experience the stress, inconvenience, and cost of moving out of your family home to a smaller property. It provides not only financial freedom, but importantly - freedom of choice.


No negative equity guarantee

All the equity release schemes we recommend come with no negative equity guarantees.

What does this mean? If, at the time that your plan is repaid, your house is worth less than the amount you owe, your loved ones won’t be expected to repay the difference to the lender – and so they will never be out of pocket.


The disadvantages

‘Roll up’ interest

Lifetime mortgages allow homeowners to borrow money against the value of their property at a fixed rate of interest. Because many people choose not to make any interest repayments over the life of their plan, this means that the interest is ‘rolled up’ and added to the final repayment when the plan ends. The longer the term of the plan, the greater the amount of interest that will have to be repaid.

As previously mentioned, the amount of interest to be repaid can be kept to a minimum by either withdrawing equity in smaller chunks over time (what’s known as drawdown) or by making regular or one-off capital repayments: or both!

With Equity Release Supermarket, you can be sure that your local adviser will make sure that you are aware of all the potential pitfalls of equity release. If it isn’t right for you and you have other financial options to achieve your goals, we’ll tell you so.


Early repayments charges

Lifetime mortgages are so-called for one very good reason – they are not designed to be repaid during your lifetime.

Consequently, plans can potentially have hefty early repayment charges if you want to repay it early. That said, many of the new breeds of plans come with fixed-term early repayment charges, which means that a few years in, you have the option to close it.


Reduced inheritance

Because equity release reduces the value of your estate, it will mean a reduced inheritance for loved ones. That said, it is possible to safeguard a proportion of your property with a guaranteed inheritance plan. If this is important to you, make sure you talk this and any inheritance tax implications with your Equity Release Supermarket adviser.


"My adviser, whilst very professional, made me feel comfortable in all discussions & he took his time to explain any queries I had.
I would not hesitate to recommend Equity Release Supermarket to friends & family."

Mrs L, Newark, Nottinghamshire

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The different types of equity release plan

What is a lifetime mortgage?

A lifetime mortgage is the most common type of equity release scheme and is usually secured against your main residence. This is a mortgage designed to run for the lifetime of the homeowner, in which the property remains 100 per cent in your name.

Unlike traditional mortgages, there are typically no month-to-month repayments to make, but most plans now have the facility to make voluntary repayments to help control the balance, if needed. There are many flexible options which can be included with lifetime mortgages, which provide the facility to:

  • Make repayments either on an ad-hoc or regular basis via voluntary or monthly repayments which can help control the future mortgage balance.
  • Protect an element of equity by including an Inheritance Protection Guarantee, which safeguards a percentage of your estate to pass onto your loved ones.
  • Take future cash withdrawals on a drawdown lifetime mortgage basis, following the creation of an initial cash reserve facility.
  • Include innovative features such as downsizing protection and compassionate early repayment, both helping negate the need to pay early repayment charges.


What is a home reversion plan?

A home reversion plan is different to a lifetime mortgage. Here, a home reversion provider buys a percentage (or all) of your property (at less than market value) and in return gives you a tax-free cash lump sum. The homeowners are then given a lifetime tenancy that enables them to live rent-free in the property for the rest of their lives.

By selling a percentage of the value of your house, part of its final value is protected for your beneficiaries. When the last homeowner dies or moves into long-term care, the house is sold, whereupon the respective percentages are then divided accordingly between the lender and beneficiaries.

Don’t worry - this sounds a lot more complicated than it actually is. And what’s more, our friendly advisers will be happy to explain everything in a language that’s easy to understand.




Things to consider

Which equity release scheme is best for you will depend on your personal circumstances and your individual needs.

Lenders will only accept an equity release application following advice from an authorised and qualified equity release adviser.

All our advisers are members of the Equity Release Council and they will always provide impartial, quality advice from the whole of the market, with no pressure.

This allows you to make a decision in your own time, either in the comfort of your own home or over the telephone, whichever suits. We would also recommend that the subject of releasing equity should be discussed with your family and they are welcome to attend any meetings.



Releasing equity from your property is an important decision to make. Equity release can affect the future inheritance of your beneficiaries, not to mention your own finances. Therefore, it’s important that best advice is sought due to the complexity and variations between all equity release schemes.