Equity Release entails a method of releasing cash from your property., tax-free. While there are other methods of releasing equity from a property, such as a remortgage, this article focuses on equity release plans for those later in life.
There are two methods of equity release for this purpose, a lifetime mortgage and a home reversion plan.
These are fundamentally different, with a lifetime mortgage essentially a loan against the property’s value, and a home reversion plan a partial- or full-sale of the property.
Disclaimer: This guide is for informational purposes and does not constitute financial advice. Please consult an FCA-regulated financial adviser.
Types of Equity Release: Lifetime Mortgage vs Home Reversion Plan
Lifetime Mortgages
- A loan against the property
- You keep the property
- Compound interest is charged
- Typically age eligibility is 55+
Home Reversion Plans
- Typical age eligibility is 60+
- Not a loan. A partial- or full-sale of the property
- You sell part or all of the property
- Compound interest is not charged as you sell part or all of the property
Common Reasons to Consider Equity Release
Whilst there are many reasons you would take out an equity release product, the below are common:
- Gifting money to family
- Paying of debts
- Repairs or aesthetic improvements to the property
- Covering long-term care costs
- Supplementing income in retirement
Equity Release may not always be the best option for you. Please consult with an FCA-regulated financial adviser.
What is the Impact of Equity Release on an Estate?
Regardless of the method selected, both lifetime mortgages and home reversion plans will reduce the value of your estate.
A lifetime mortgage will increase the debt owed by your estate, whilst a home reversion plan reduces the assets of an estate.
The Benefits of Equity Release
- Release the equity in your home into cash, tax-free.
- Allows you to remain in your home for life.
- Retain full ownership of your home (lifetime mortgage only).
- You may still be allowed to move home – check the conditions of your financial product.
- Your product may include a ‘no negative equity guarantee’ to protect your estate from owing more than the property’s value.
The Disadvantages of Equity Release
- Reduces the value of your estate.
- Compound interest rates of lifetime mortgages build up over time, increase the loan to be repaid.
- May affect any means-tested benefits.
- Home reversion sales are often below market value.
- Home reversion sales mean you no longer fully own the property.
- Your ability to move home may be impacted.
Do I Need a Solicitor for Equity Release?
Yes. Unlike some other legal services, for Equity Release, you will need the advice and assistance from a solicitor whom is regulated by the Solicitors Regulation Authority.
A solicitor will assist with:
- Reviewing the title deeds for your property to ensure that you are able to comply with the lender’s conditions.
- Review any restrictions.
- Advise you on the legal implications of entering into an equity release arrangement.
- Pay off a pre-existing mortgage using the equity release funds (where relevant)
A solicitor will not be able to offer financial advice. You must seek out an FCA-regulated financial adviser in order to proceed with an equity release product.
Explore our Equity Release service page or contact us to speak with an expert.
FAQs
Does my age have an effect on how much equity I can release?
Yes, generally the older the applicant, the higher % of the property’s equity can be released.
Note that when applying on a joint property, the youngest applicant’s age is the one taken into consideration.
Is Equity Release the same as a remortgage?
No. Whilst both equity release and remortgaging are options to unlock cash from the value of a property, they differ.
A remortgage is a traditional loan with monthly repayment terms, generally available to all homeowners. Equity release is targeted at older homeowners and generally doesn’t require repayment until death or a move into long-term care.
Can I get Equity Release on my house if I’m under-55?
Generally, no. You typically have to be 55 years of age or older to be eligible. However, some providers offer lifetime mortgages to those not quite at 55 years of age.
For under-55s, you have the option of remortgaging your house. You can also ‘downsize’ and purchase a less expensive property, in order to release capital.
Can Equity Release impact my benefits?
Yes; according to Age UK, both current and future benefits may be affected.
Can I move home after taking equity release?
This depends on the agreement of your lifetime mortgage or home reversion plan.
A lifetime mortgage often comes with a ‘portability’ clause, allowing you to move if the new property meets the lender’s requirements around size, value, location and so on. This may carry a repayment if you downsize.
A home reversion plan is more limiting in allowing you to move home, as you’re no longer the full legal owner of the property. You would generally have to sell the current home and/or enter a new agreement with the provider.
Sarah Barnes | Partner, Head of Residential Conveyancing
Sarah Barnes is a partner and head of the residential conveyancing team, based in the firm's Preston office
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