Equity release

Equity release is a way of releasing the wealth tied up in your property without having to sell it and move to another home. You can either borrow against the value of your home or sell all or part of it in exchange for a lump sum or a regular monthly income. Some plans give you the option to draw down further equity (cash) at a later date, based on your requirements.

Equity release is designed to help people aged 55 and over who either own their property outright, or have relatively small mortgages left to pay. They may decide to release equity in their property – that is, take out a loan or sell part of the value of the property – knowing that they will not actually pay that money back to the lender (or reversion provider, in the case of a home reversion plan). The loan or reversion sum will be repaid at a future date when the property is sold.

Equity release can be used for almost anything you choose including home improvements, easing money worries, providing gifts to family, taking a holiday of a lifetime or improving your retirement funds.

Yes. Factors such as your age and the value of your home will determine the amount of money you can release.

There are two main types of equity release: Lifetime Mortgages and Home Reversion plans. Both types of plan are regulated by the Financial Conduct Authority (FCA). By using an equity release product, a homeowner can draw a lump sum or regular smaller sums from the value of their home while continuing to live in it.

Lifetime Mortgages are a type of mortgage where you can choose to extract your funds in a single lump sum or in smaller amounts over time up to the maximum limit agreed with the plan provider. You can also elect to retain some of the value of your property as an inheritance for your family, meaning that you can benefit from releasing equity while ensuring you have something to pass on to your children.

You retain full ownership of your home, and interest on the loan can be fixed or rolled up. The loan and the rolled-up interest is repaid by your estate when you either die or move into permanent long-term care. If you are part of a couple, the repayment is not made until the last remaining person living in the home either dies or moves into permanent long-term care. In other words, both you and your partner are free to live in your home for the rest of your lives.

With some plans, you can make monthly interest repayments in part, or in full. That way, you can maintain the debt to the initial amount of the loan before interest. If you choose to make interest repayments, you still have the option to move to a roll-up arrangement at a later date if you wish. There are even some lenders who can offer you the option to pay some capital throughout the plan, but always discuss details with your plan provider.

How much can be released is dependent on your age and the value of your property. Some providers may be able to offer larger sums to those with certain past or present medical conditions. Some providers may offer larger sums to those with certain past or present medical conditions, or even ‘lifestyle factors’ such as a smoking habit.

Home Reversion Plans allow you to access all or part of the value of your property while retaining the right to remain in it, rent-free. With Home Reversion, the provider will purchase all or a part percentage of your house. You know precisely what portion of your property you have parted with and, equally, what has been ring-fenced for later use, possibly to leave in a Will. The percentage you retain in your property will always remain the same regardless of the change in property values, unless you decide to take further cash releases. At the end of the plan, your property is sold, and the sale proceeds are shared according to the remaining proportions of ownership.

Again, depending on your age and medical conditions, you may be able to access more funds. You will be provided with a tax-free cash lump sum (or regular payments) and a lifetime lease, guaranteeing you the right to stay in your property rent-free for the rest of your life. There is no day-to-day interference and no restrictions in treating the house exactly as before: as a private home to live in freely. 

The use of an equity release scheme will reduce the value of your estate. You should speak to your financial adviser if you are considering using equity release for this purpose.

As long as the new home you wish to move to meets the acceptance criteria of your equity release provider, then you should be able to transfer your plan to a new property. In some circumstances (for example, downsizing to a smaller property), a part repayment of the equity released may be required.

If the plan is in both your names, then it will continue until the death of the last surviving person – allowing them to remain living there until they die or go into permanent long-term care. However, if your property and equity release plan is held in your name only, the property would usually have to be sold and your partner would have to find somewhere else to live (unless, for example, they were able to repay the equity release plan in full).

The risks will depend upon the type of equity release plan you choose. Consolidating existing debts using equity release could end up costing more in the long term, so you should think carefully before securing other debts against your home. Your Heritage Independent Mortgage Advisers adviser will talk you through all of this and the risks involved in your appointment.