What is equity release and how does it work?

Equity release is a financial product that allows homeowners, usually those aged 55 and older, to access some of the equity tied up in their property while still living in it. Equity release can provide a source of income or a lump sum, and it’s typically used to supplement retirement income or fund major expenses, such as home improvements or healthcare costs.

This guide is for anyone who is considering releasing equity on their property. Our guide will help you to understand the advantages and disadvantages of equity release.

There are two main types of equity release schemes in the UK:

Lifetime Mortgage

A lifetime mortgage is the most common form of equity release. It allows homeowners to borrow a lump sum or receive regular income, using their property as collateral. The loan does not require regular monthly repayments. Instead, the interest is typically added to the loan balance, which can grow over time. The loan is repaid when the surviving homeowner passes away, moves into long-term care, or sells the property.

Home Reversion

Home reversion plans involve selling a portion or the entire property to an equity release provider in exchange for a lump sum or regular payments. The homeowner retains the right to live in the property for the rest of their life. When the property is eventually sold (usually upon the homeowner’s death or moving into care), the equity release provider receives their share of the proceeds, while the homeowner’s beneficiaries receive the remaining value.

How does equity release work?

It’s strongly recommended to seek independent financial advice from a qualified advisor before proceeding with equity release. The advisor will assess your financial situation, goals, and alternatives to equity release to ensure it’s the right choice for you. A qualified surveyor will assess the value of your property. The amount you can release is typically based on a percentage of the property’s value, which varies depending on your age and the provider’s terms.

You will need to engage a solicitor who specialises in equity release to handle the legal aspects of the transaction. The solicitor will ensure you fully understand the terms of the equity release plan and that it’s in your best interest. If you are happy with the offer and in a position to proceed, the lender will release money to your solicitor. The solicitor then transfers the funds to you as agreed with the lender – either as one lump sum payment or in instalments.

Can I release equity from my house under 55?

In the UK, equity release schemes are typically available to homeowners aged 55 and older. This is a standard industry practice and most providers adhere to this age limit. If you are under the age of 55 and interested in equity release, your options to do so may be limited, but there are alternative financing options available such as a regular mortgage. Our solicitors are on hand to talk you through your options and assist with any legal processes required.

How long does equity release take?

The process of releasing equity from your property typically takes 8-12 weeks but will differ depending on the product and provider chosen.

How much equity can I release from my property?

If you are eligible for equity release, you will typically be able to borrow between 20% to 60% of the value of your home.

Equity release advantages and disadvantages

Equity release has many benefits including the following.

• Providing a source of income
• Offering a solution to release funds without having to sell or move out of your home
• Giving access to tax free cash
• No monthly repayments with certain products such as life time mortgages
• The amount owed will never exceed the amount the property is worth when sold

However, equity release may also have some negatives outcomes, as mentioned below.

• Interest is calculated daily so the amount you owe compounds reducing the equity left in your home
• Reduces the value of your estate potentially leaving less for beneficiaries
• The money received from equity release can affect your eligibility for means-tested benefits

Further guidance on equity release

If you are considering equity release as a way to free up funds, talk to our trusted equity release solicitors today for guidance on your options and support throughout the process. Get in touch using the online form to the right of this page or call us on 01622 690691.

This content is correct at time of publication