We’ve all seen the adverts telling us equity release is the best thing since sliced bread.
Most of us will have read stories about people taking early retirement, jetting off to the Caribbean, paying off their debts, or buying a flashy new car. All with a lump sum from their house.
What’s more, they say you don’t have to make any monthly payments, and it doesn’t matter what you want to spend it on.
If you want to buy a pink Cadillac and take a road trip across America – the cash and the decision are yours.
Not necessarily. Depending upon your circumstances, it could be the best thing since sliced bread - so long as you use your loaf!
For many, equity release provides financial flexibility and freedom. In fact, Brits unlocked £4.8 billion of cash from their homes in 2021 – that’s 24% more than in 2020.
Equity release is a type of mortgage for over 55s and it does what it says on the tin – it lets you release equity from your home.
There are two kinds, with the most common one being a lifetime mortgage. This is a loan secured against your property that has to be repaid from its sale when you die, or if you have to move permanently into a care home.
The property must be in the UK, and it must be yours and your main residence. It must be over a certain value and in a satisfactory state. If it has any other loans secured against it, these would have to be paid off when you take out equity release.
A lump sum lifetime mortgage is where you take out the cash in one go. You will get a lower, fixed interest rate with this.
This is where you take cash up to an agreed amount as and when you need it, with interest only added to money you’ve drawn down.
This ensures the lender won’t take more than the house is worth, meaning there will be no debt to take from your estate, and therefore your beneficiaries, when you die.
Yes. If you were to borrow £65,000 of your equity on a fixed interest rate of 6.4%, you would owe £137,000 in 12 years.
You can reduce the debt by making voluntary payments if you choose a lender that allows this.
You must be absolutely sure you know what you’re getting into or you could be hit with a nasty shock further down the line.
Yes. As long as you choose a lender that lets you and it’s to a suitable property. You can also take out a plan with downsizing protection. This means you won’t incur repayment charges if you want to move to a smaller house and pay off your loan early. (After a minimum term, commonly 5 years).
No. However it could affect your entitlement to means-tested benefits.
Yes and no. The inheritance tax threshold is £325,000, so you don’t pay inheritance tax on estates worth less than that. If you leave your home to children or grandchildren, the threshold is increased to £475,000. So if you’ve taken equity from your home, you’ll lose that extra benefit of £150,000 that wouldn’t have been subject to tax.
But – if you’ve already given cash from your home to your family, it doesn’t count for inheritance anyway, as long as you survive for seven years after you’ve gifted it.
Yes, lenders rules vary on this, but you can use equity release to pay off your debts.
Yes, you can fill out a health and lifestyle questionnaire to assess your eligibility for an enhanced lifetime mortgage. This may even give you better terms and access to more cash, which you could use to pay for treatment or have a better quality of life.
Equity release is not for everyone, but if you do decide to go down this route, make sure the provider is a member of the Equity Release Council. They safeguard consumers, and promote safe equity release products that are authorised and regulated by the Financial Conduct Authority.
It’s about making your money work for you, while safeguarding your future. We’ve partnered with the UK Mortgage Centre to guide you through the mortgage process, making it easy and transparent, so you can feel empowered every step of the way.
