Equity Release

Equity release mortgages are financial products that allow homeowners over the age of 55 to access some of the value tied up in their homes without the need to sell the property.

These schemes can provide a source of income or a lump sum of cash. This can be used for various purposes, such as ‘topping up’ retirement income, making home improvements, or paying off debts.

Equity release can reduce the value of your estate, potentially affecting what you can leave to your heirs.

How does equity release work?

Equity release is all about realising some of the value of your property, so you can make use of the cash tied up in it immediately. It is often an attractive option because lenders can grant approval even if you still have a mortgage on your home. You typically don’t make monthly payments. The loan is repaid following your death, when you move into long-term care, or when your house is sold.

There are two main types of equity release in the UK.

Lifetime mortgages

A lifetime mortgage allows homeowners to borrow a portion of the value of their home while retaining ownership.

The loan is repaid when you pass away, move into long-term care, or decide to sell the property.

Interest can be paid monthly or rolled up, which means it accumulates and is repaid along with the initial loan amount at the end.

There are various options available. These include drawdown plans (where you release funds in stages) and interest-only mortgages (where you make regular interest payments).

Many lifetime mortgages offer a ‘no negative equity’ guarantee. This means if you owe more than the house is worth when it is sold, your beneficiaries won’t need to make up any shortfall.

Home reversion plans

This is a form of equity release available only to those over 65.

With a home reversion plan, homeowners sell a portion or all of their property to a reversion company in exchange for a lump sum or regular payments.

You continue to live in the property without paying rent until you pass away or move into long-term care.

When the property is sold, the reversion company receives its share. The remaining portion goes to your estate or beneficiaries. It is important to note that the provider will get a payment based on the percentage of your house they own, rather than just getting back the amount they lent with interest. That means if the house value increases, they could receive significantly more than they initially lent.

It’s also important to remember that it’s likely the house will be valued significantly lower than its market value by the home reversion provider to allow them to manage their risk.

Are there any alternatives to equity release?

While equity release can be a suitable financial solution for some people, it’s not the right choice for everyone. Before going ahead with equity release, consider exploring alternative options which may better meet your financial needs and goals.

Selling your current property and purchasing a smaller, more affordable one is a common alternative. This can release equity without taking on additional debt. It may provide you with a more manageable and cost-effective living situation.

If you have savings, investments, or other assets, consider whether it’s possible to use these to meet your financial needs, rather than borrowing against your home. Liquidating assets can provide a source of income.

Explore any government benefits or support programmes that you may be eligible for. Some benefits are designed to provide financial assistance to retirees and may help supplement your income.

Get equity release advice

Equity release can be the right choice if you need cash in later life. At The Mortgage Store, our qualified equity release advisers can help you make the right decision based on what you want to achieve.