Equity release

Key facts

How much debt must I owe? There is no minimum or maximum level of debt. However, it’s more likely to be a suitable option if you have debts that you can’t afford to clear through your existing regular income.

What type of debt? You can use this option to clear any type of debt.

How long will it last? There is no time limit. Different equity release schemes can give you money in different ways and at different times. For example, some may give you a cash lump sum. Others may give you regular payments over time.

How it works

You consider all options to deal with debts and raise funds. You identify that you would like to release money from your property to help clear debt.

You get independent financial advice and independent legal advice to help you understand the advantages and disadvantages of equity release.

There are two main types of scheme available.

  • Lifetime mortgages give you funds in a single lump sum or smaller instalments over time, or a combination of both. You remain the owner of your home. The lifetime mortgage is repaid when you die or go into long-term care.
  • Home reversion plans allow you to sell part, or all, of your property to a home reversion company. They give you a lump sum or regular smaller payments. When the property is sold, the home reversion company gets their share of the sale proceeds.

Advantages

  • Equity release can give you a cash lump sum or regular monthly payments. This can help with regular bills, home improvements, care costs and so on.
  • You can usually stay in your property for as long as you need to.
  • You may be able to move, as long as the new property is acceptable to the equity release firm.
  • You can set aside part of your property value as an inheritance for your family members.
  • You do not have to pay rent to the equity release provider.
  • For lifetime mortgages, you may be able to choose whether to pay back interest or let it build up.
  • The loan is usually only paid back when you die or when your property is sold.
  • For some lifetime mortgages, interest rates are either fixed or can’t rise above a set level.
  • For some equity release schemes, there is a guarantee that the total amount you owe cannot be greater than the value of your property.
  • You will not have to pay tax on the equity released from your main home.

Disadvantages

  • Your equity immediately becomes less.
  • You may leave a smaller inheritance to other people when you die.
  • A lifetime mortgage means that you are securing further borrowing against your home.
  • For home reversion schemes, home reversion companies will usually pay a lot less than the full market value of their share of your property. Also, you will no longer be the sole owner.
  • If you die or sell your home shortly after taking out an equity release scheme, you could lose money. There may also be early repayment charges if you decide to repay what you owe within a short time of taking out the deal.
  • If house prices fall, you may owe a greater percentage of your home’s value.
  • With a lifetime mortgage, if you live long enough, you could end up owing 100% of your property’s value.
  • The money you get from equity release could affect the amount of benefits you are entitled to.
  • You may need the provider’s permission for someone else to move in, such as a relative or carer.
  • You usually need to get your provider’s permission to move to another property.
  • You usually have to pay costs for arranging the transaction, for your property to be valued and for legal fees.
  • You will still be responsible for paying all the usual bills such as council tax, gas and electricity. You may also need to pay for buildings insurance.
  • You will usually be responsible for repairs and maintenance. So you may need to regularly set aside some money for this.