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Equity release mortgages

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What is equity release?

The equity you hold in your home is its value minus any loans secured on it. Given that house prices have grown significantly over the past few decades, many older homeowners find themselves sitting on major assets.

If you own your home and need cash, equity release allows you to access some of the money tied up in your home without moving. It’s an expensive way to borrow, though, so you should make sure it’s right for you before going ahead.

By releasing equity from your estate today, you will reduce its value in the future. This could impact any inheritance plans you have or the amount of money available if you need it later – to move to a different property for example. And if you’re entitled to any means-tested benefits, releasing equity could affect your entitlement to them. 

How does equity release work?

There are two types of equity release – lifetime mortgage and home reversion. When releasing equity with either type you can stay in your home. The money is repaid by selling the property when the last homeowner dies or moves into long-term residential care.

With a lifetime mortgage, you are not required to make any payments towards the loan as you would be with a standard mortgage. But you can choose to do so if you wish as this will reduce the overall cost. Otherwise, the interest usually rolls up and the full amount borrowed plus this accrued interest is repaid when the property is sold. 

With home reversion, you sell a share of your home or all of it to a provider for less than the market value. When the property is sold, the provider gets that share of the proceeds. 

How to release equity in your home

Enter your details

Enter your details into Responsible's free calculator to find out how much you can release.

Compare plans

See the range of options and features currently available in the equity release market.

Get advice

A fully qualified adviser will help you to understand if equity release is right for you.

Why choose equity release?

You may have a wide variety of goals as you enter or begin toplan for retirement. Funding your long-held dreams can be costly, but accessing a tax-free cash lump sum with equity release can give you the financial freedom to be able to enjoy your retirement as you wish.

Some of the most popular reasons for taking out an equity release product include:

  • Clearing an existing mortgage

  • Gifting an early inheritance

  • Making home improvements

  • Increasing disposable income

  • Funding big purchases, such as holidays and new cars

Am I eligible for equity release?

Whether you are eligible for a specific equity release scheme will depend on the equity release provider and product. However, in general terms, you usually need to meet the following requirements:

  • Be aged 55 or over (65 for home reversion)

  • Own a property in the UK worth £70,000 or more

  • Intend to release at least £10,000

Having an existing mortgage secured against your home doesn’t necessarily prevent you from releasing equity. As long as you can clear your existing mortgage on completion of your lifetime mortgage, either with the funds you release or other savings you may have, you can still be eligible for equity release.

Costs involved in equity release

With a lifetime mortgage, as there is no requirement to make any payments when you release the equity, the cost comes from the build-up of interest over time. However, some products will offer the option to make voluntary payments to reduce this cost.

According to Legal & General, if you borrow £50,000 at 4% and don’t make any payments, 20 years later you’ll owe a total of £109,556, so borrowing £50,000 has effectively cost £59,556. At 5% you’ll owe £132,664.

With a home reversion plan, the provider makes its money by paying you less than the market value for the share of your home it buys and then benefitting from any increase in the property’s value by the time it’s sold. 

The amount the provider gets is less predictable than with a lifetime mortgage as it depends on how much house prices go up. But home reversion plans can often end up being significantly more expensive.

Equity release interest rates and charges

The interest rates charged on lifetime mortgages are higher than for standard mortgages. They are usually fixed and currently start from around 4% APR (annual percentage rate). However, the higher the percentage of your property’s value you’re borrowing, the higher the rate is likely to be. You can release between 20% and 60% depending on your age and property value.

There is no interest to pay with home reversion plans as you are selling part or all of your home to the provider, but you could get between 20% and 60% of its market value depending on your age and other circumstances. 

You may also have to pay an arrangement fee to the provider, valuation and legal fees, buildings insurance, an adviser fee and a completion fee. 

You should take arrangement fees as well as interest rates into account when deciding which lifetime mortgage deal is best for you.

Alternatives to equity release

As equity release can be expensive and restrict your options later it’s important to consider alternative ways to raise cash before going ahead. These include:

  • Downsizing to a cheaper property

  • Remortgaging your home – many lenders are now happy to lend to older and retired borrowers

  • Taking out a retirement interest-only mortgage – this is similar to a lifetime mortgage, but you pay off the interest each month. The loan is repaid when you die or move into long-term care

  • Renting out a room in your home – you can earn up to £7,500 a year tax-free

  • Making the most of existing savings and investments

Claire Flynn - Senior Mortgages Editor at Uswitch
quotation mark

There are a couple of different types of equity release, so we would always recommend taking professional advice before you proceed”

Claire Flynn

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