All About Equity Release

Cara Bradley

Written by

Cara Bradley

5 min read

Updated: 09/07/2024

Recent data revealed that equity release borrowing has doubled since 2017, with over 25,000 UK households choosing to release the equity in their property in 2023 alone.
It’s thought that the increase in popularity is down to a range of factors, including the fact that people are living longer and therefore require access to more money, whether that be to cover the cost of home maintenance or buffer the retirement fund.

Attempting to decode the jargon surrounding equity release can be a confusing task. Our guide aims to break down the complicated terminology and provide a straightforward insight into the pros and cons of equity release.

The history of equity release

The first example of equity release in the UK was recorded in the 1960s, although there was very little guidance or protection in place for borrowers. Typically, early examples of equity release came in the form of one lump sum of money, rather than the array of options and schemes that are available today.
Unfortunately, during the 1980s, the market took a sour turn, largely attributable to unregulated lending. This sadly resulted in many people being left with negative equity.

In 1991, the Safe Home Income Plans (SHIP) – now known as the Equity Release Council (ERC) - was put in place, where it remains to this day. The ERC ensure that certain standards are met, with the aim of offering borrowers as much protection and peace of mind as possible.
Their product standards include a no negative equity guarantee, fixed or capped interest rates on lifetime mortgages, and granting borrowers the right to remain in their property either for life, or until they move into long-term care.

Who qualifies for equity release?

Exact eligibility criteria will vary between providers, but generally, you might be able to apply for equity release if:

  • You’re over the age of 55;
  • You own the property in question outright, with no attached mortgage, or a mortgage low enough that you’d be able to pay it off with the money released;
  • Your home is in good condition and worth over £70,000; and
  • You’re hoping to borrow a sum of more than £10,000.

Check the FCA register

Companies offering both lifetime mortgages and home reversion schemes must be authorised and regulated by the FCA. You can search for companies on the FCA register here.

You should avoid and be very wary of any company that doesn’t appear on the FCA register but claims to offer equity release services. They are highly unlikely to be operating legally, meaning your money will not be protected, and you could be at risk of being scammed.

Choose a reputable provider

Make sure that the equity release provider you’ve chosen is also approved by the Equity Release Council (ERC). The ERC ensure providers offer a legitimate and high-level service to borrowers.
One of the terms and conditions set out by the ERC means that those borrowing money through a lifetime mortgage scheme will never owe more than the value of their home. This is called a no negative equity guarantee.

Equity release calculator

If you’d like to find out how much equity you could release, there are many handy calculators available online, such as this one on Compare the Market.

What exactly is equity release?

Equity release is when you gain access to the monetary value of any equity in your home, while having the freedom to remain in it. To qualify for equity release, you’ll need to either own your home outright without a mortgage or have a very small balance on your mortgage left to pay.
It’s important to understand that equity release comes with interest.

There are typically two types of equity release: lifetime mortgage and home reversion plan. We’ve included information on each of the schemes below.

  1. Lifetime mortgage
  2. A lifetime mortgage is a type of loan that allows you to borrow money from the value of your house. Your released funds can either be paid in one lump sum or in instalments when you need it. This is often referred to as a ‘drawdown.’
    Unlike a standard mortgage, you are not required to make monthly repayments, although you can if you’d like to.
    If you choose not to make repayments, the balance of the loan, including accrued interest, will be repaid in full either when you pass away or move into indefinite care. If you don’t have a spouse or partner entitled to live in your property after you move into care, your house will be sold. The amount of money you borrowed, including the interest, will then be repaid to the provider.
    This can lower the value of your estate.
    In addition to this, not making repayments will inevitably mean that the cost of releasing equity becomes more expensive, as the money you have borrowed will continue to accumulate interest.

  3. Home reversion plan
  4. A home reversion plan is when you sell all or part of your property to a home reversion company for less than the current market value in exchange for a tax-free amount of money. You can get a valuation done through an estate agent, or for a more accurate representation, a character surveyor.
    Even if the entire property is sold, you can remain living in the house until you pass away or move into a permanent care provision. After this, the home reversion company will sell your house and keep their entitlement.
    As with a lifetime mortgage, your money can either be paid in one lump sum or in instalments.

What can equity release be used for?

You can use the money from your equity release for whatever you choose, providing that it’s legal, however, you should always try to spend responsibly and within your means.
According to a 2024 study, the five most popular reasons for equity release are:

  1. Funding retirement costs;
  2. Financially helping children (for example, helping them to purchase a house);
  3. Supporting travel and holiday goals;
  4. Paying for home and garden improvements; and
  5. Clearing debt.

What’s good about equity release?

  • Equity release could grant you access to the money tied to your property while you’re still able to live in it.
  • The money you receive from equity release is tax-free.
  • You’re not bound by monthly repayments as you are with a standard mortgage, although you can make regular repayments, if you choose to.
  • In many cases, you have the flexibility to either withdraw the full amount of money in one go or in instalments.

Things to be aware of

While equity release could have its advantages, it’s extremely important to carefully consider the possible risks before making a decision.

  • Equity release will reduce the value of your estate. Your estate is defined as everything you own, including your home, possessions, pension, and any investments.
  • You will accrue interest on lifetime mortgage plans.
  • Equity release could affect some benefits, such as Pension Credit and Council Tax Reduction.
  • You may be subject to additional charges to pay, such as initial set up and early repayment fees.

If you’re unsure whether equity release is right for you, you should take independent financial advice about your options, for example, you may wish to consider the alternatives, such as downsizing to a cheaper property instead.

Is equity release safe?

Equity release is protected by the Financial Conduct Authority (FCA), and the ERC. As long as you do thorough research and use reputable sources, equity release can be considered as safe.

The equity release process

The full process will typically take up to 8 weeks to complete, although it could take longer, depending on the provider and the speed of the application and relevant checks.

  1. Seek advice
  2. In line with requitements set out by the FCA, you will need to seek professional advice from an equity release adviser before you apply for either a lifetime mortgage or a home reversion plan.
    They will be best placed to talk through your options and help you make an informed decision for your individual circumstances. They should also be able to point you in the right direction of a reputable provider.
    You can find qualified equity release advisers on the ERC website.
    You’ll also need a solicitor – preferably one with experience in equity release schemes.

  3. Get your house valued
  4. The next step is to arrange a house valuation, which will give you an idea of its current market value. This can be arranged through a chartered surveyor.
    You’re likely to be charged a fee for the completion of your valuation.

  5. Receive your money
  6. Once all relevant legal checks and your valuation have been carried out, you’ll be informed of a completion date. This is when you can expect your funds to be released.
    You’ll usually be required to pay any additional fees and processing charges at this stage too.

For free financial advice…

Before you make a commitment, you should be certain that equity release is the right option for you. If you wish to discuss your financial situation in further detail, seek additional advice, or have a chat about any money worries you may be experiencing, you can contact one of the following charities and organisations for free: StepChange, MoneyHelper, Citizens Advice, and National Debtline.

Family affair

Should you choose to proceed with equity release, be sure that you’re doing so for the right reasons, and not as a result of somebody else putting pressure on you to do so. As we’ve discussed, equity release is not a decision that should be taken lightly.

Depending on your relationship, you may wish to discuss your decision with family members so that they’re aware of the situation and what they need to do. Your family, or next of kin, are likely to be the ones that will need to navigate the final payment and processing of funds in the event that you pass away or move into full-time care.

In addition to this, if your current will refers to money based on the value of your home and you decide to go ahead and release equity, you may need to revise this.