Equity Release is a way of accessing some of the money tied up in your home without having to move. There are two main types of equity release, and they work in different ways;

• Lifetime mortgage. This is the most common type of equity release. Like a traditional mortgage, it’s a loan secured against your home, but the money doesn’t usually need to be repaid until you die or move permanently into residential care.
  
  
• Home reversion plan. This plan allows you to sell part (or all) of your home while you stay living in it. The reversion company then gets a share of the proceeds when your home is sold – usually after you die or move into permanent care. They don’t pay the market rate, so your estate might be significantly reduced if you die shortly after taking out the plan.

Equity Release is a way of accessing some of the money tied up in your home without having to move. There are two main types of equity release, and they work in different ways;

• Lifetime mortgage. This is the most common type of equity release. Like a traditional mortgage, it’s a loan secured against your home, but the money doesn’t usually need to be repaid until you die or move permanently into residential care.
• Home reversion plan. This plan allows you to sell part (or all) of your home while you stay living in it. The reversion company then gets a share of the proceeds when your home is sold – usually after you die or move into permanent care. They don’t pay the market rate, so your estate might be significantly reduced if you die shortly after taking out the plan.

Whether equity release is an option for you depends on a few things:

Your age

For a lifetime mortgage, you (or both of you if you’re borrowing jointly) need to be at least 55 years old.

For a home reversion plan, you (or both of you if you’re borrowing jointly) need to be at least 60 years old.

Your home

You must own property in the UK, and it must be your main residence. Your property also needs to be in reasonable condition and over a certain value. There may also be restrictions on the type of property accepted.

You might still qualify for equity release if you have a mortgage or other loan secured against your property – but it will depend on the value of your home and the amount you owe. You’ll have to pay off any outstanding mortgages or loans secured against your home at the same time as taking equity release.

Equity release is a very common way of repaying an interest-only mortgage whereby individuals don’t have the funds to pay their current lender what is owed.

Your family

Equity release can be complicated if you live with any dependents. To stay living in the property with you, they might need to sign a waiver confirming they understand they don’t have the right to keep living in the property if you die or move into permanent care.

Equity release could also affect someone coming to live with you in the future. If a family member or friend moves in after you take out equity release, they’ll have to sign a waiver releasing any rights to the property.

No. You do not need an income and you do not go through affordability or credit checks.

No. You can choose for the interest to roll-up meaning you do not need to make any monthly repayments. When you die or move into long term care, the interest that has accrued plus the lump sum you released, is repaid to the lender from the sale of the property. Any equity remaining after the lender has been repaid, goes to your estate.

You can choose to make monthly repayments to reduce the amount owed when you die or move into long term care.

Yes. All Equity Release mortgages have a no-negative equity guarantee meaning you’ll never owe more than what your property is worth.

A home reversion plan allows you to retain a percentage of your property ensuring that your percentage goes to your estate on sale of the property when you die or move into long term care.

Whether you choose to access your cash as a lump sum or in a series of payments over time, you won’t have to pay income tax on the money you release. This is because the money is a loan, and loans are typically exempt from tax that applies to other forms of income.

However if you put your equity release money into a savings account rather than spend it straight away, any interest you earn on these savings could be subject to tax. 

The provider will require that your new property meets the same criteria as if you were taking out a new plan. This is because equity release providers may be unwilling to accept properties that might be difficult to sell, as this is how your equity release plan will be repaid.

Thankfully, protections are in place to protect anyone taking out an equity release plan. The industry is regulated by the Financial Conduct Authority, the government body responsible for regulating financial firms in the UK. It has extensive standards in place for anyone advising on equity release or providing equity release products to follow.

Another layer of consumer protection is provided by the Equity Release Council (ERC). Because our selected advisers are members of the ERC, they have signed up to its standards and only recommend equity release plans that meet them. These standards include a ‘no negative equity guarantee’ to ensure you or your loved ones will never owe more than your property is worth. 

Finally, it is worth mentioning that you will need to use the services of an equity release solicitor when making an equity release application. They will act on your behalf, ensure you understand the risks and rewards of the contract you are entering into, and take care of the legal side of the equity release process.

This is certainly a sensible equity release question. There are alternatives that may be more suitable than equity release if you need access to cash.

Equity release can be an expensive way to raise money, and some alternatives might be cheaper or easier to arrange. Some of the potential alternatives to equity release include:

• Downsizing.
• Remortgaging.
• A retirement interest only mortgage.
• Taking in a tenant or lodger.
• Accessing your savings.
• Selling assets such as valuables or a second home.
• Accessing grants such as Disabled Facilities Grants.
• Checking to see if you are entitled to more benefits than you currently receive.

Advantages

Below are some of the main advantages of a lifetime mortgage. (The other form of equity release is a home reversion plan.) 

• You can unlock the money needed to enjoy a happier retirement without having to sell or downsize your home.
• You can continue to live in your own home for the rest of your life, or until you move into residential long-term care.
• You don’t have to make loan or interest payments as everything is eventually paid back through the sale of your home (although you can make payments if you wish to reduce the amount of interest that accrues). 
• You can choose to receive the money as a tax-free lump sum or by drawing down regular, smaller amounts as and when you need them. 
• If your property benefits from future house price increases, you may be able to apply for more money if you wish.
• You can move (‘port’) your plan to a new home if you wish to move house in the future,  providing your new home meets suitability criteria. 
• You will be protected by the Equity Release Council’s ‘no-negative equity guarantee’ which means you or your beneficiaries will never owe more than the value of your home.
• You can use the money in any way you choose; some popular uses for equity release include making home improvements, paying off your mortgage and helping loved ones.
• Equity release can be a lifeline for over-55s stuck on an interest-only mortgage with no other means of repaying it.

Disadvantages

Equity release isn’t for everyone, and it’s important to understand the potential disadvantages of equity release and risks of this form of finance:

• One of the main negatives of equity release is that it will reduce the value of your estate and the amount of inheritance you can leave to your family.
• Another equity release negative to consider is that the total loan amount can grow quickly as the interest rolls up on a compound basis.
• Releasing money might affect your entitlement to some means-tested state benefits.
• If you are receiving homecare which is fully or partially funded by your local council, then your eligibility may be affected, or you may have to pay more towards it.
• There may be early repayment fees to consider if you wish to repay the loan plus interest early, although some lenders waive these in some circumstances.
• If you give some of the money you release to family or friends as a gift, they may be liable to pay inheritance tax in the future.