Equity release is a financial arrangement that allows homeowners to access some of the money tied up in their property without the need to sell or move out. This overview provides an exploration of how it works, types of plans, a comparison of leading UK providers, and the key factors to consider.
What is Equity Release And Its Types
Equity release enables homeowners to unlock a portion of their property's value while continuing to reside in their home. The amount that can be released depends on factors such as the homeowner's age, the value of the property, and the specific product chosen. The two main types of equity release are:
Lifetime Mortgage: The most popular form, where a loan is secured against the home. Interest is usually rolled up and repaid, along with the loan, when the homeowner passes away or moves into long-term care.
Home Reversion Plan: The homeowner sells a share, or all, of their property to a provider in exchange for a lump sum or regular payments, while retaining the right to live in the property rent-free for life.
Types of Equity Release Products
Lifetime Mortgages
Available to homeowners aged 55 and over.
No monthly repayments are required; interest is typically added to the loan and paid off when the property is sold.
Some plans allow voluntary repayments to reduce the total interest accrued.
Flexible withdrawal options, including lump sum and drawdown facilities.
Home Reversion Plans
Available to homeowners usually aged 60 or over.
A percentage of the property is sold to the provider for less than market value.
The homeowner retains the right to live in the property rent-free until death or moving into long-term care.
When the property is sold, the provider receives their share of the proceeds.
Benefits And Risks
Benefits of Equity Release
Access to tax-free cash without the need to move home.
Flexibility in how funds are withdrawn and used.
The right to remain in the property for life or until moving into care.
Some plans offer a no negative equity guarantee, ensuring that the debt will never exceed the property's value.
Risks and Considerations
Interest can accumulate rapidly, reducing the value of the estate left to beneficiaries.
Releasing equity may affect eligibility for means-tested state benefits.
Early repayment charges can apply if the plan is ended prematurely.
Reducing home ownership may impact future housing options.
Comparison of Leading UK Equity Release Providers
Provider Type of Plans Minimum Age Maximum Loan-to-Value (LTV) Notable Features
Legal & General Lifetime Mortgage 55 Up to 58% Drawdown options, inheritance protection, no negative equity guarantee
Aviva Lifetime Mortgage 55 Up to 55% Flexible repayments, enhanced plans for health conditions, no negative equity guarantee
Just Lifetime Mortgage 55 Up to 56% Tailored plans, drawdown facility, inheritance guarantees
More2Life Lifetime Mortgage 55 Up to 58% Wide range of plans, flexible features, no negative equity guarantee
Pure Retirement Lifetime Mortgage 55 Up to 55% Simple application process, drawdown options, inheritance protection
Nationwide Building Society Lifetime Mortgage 55 Up to 50% Available to existing mortgage customers, flexible repayment options
Bridgewater Equity Release Home Reversion 65 Up to 100% (share sold) Home reversion specialist, flexible percentage sale, rent-free living
How to Decide if Equity Release is Right for You
Assess your financial needs and long-term goals.
Consider the impact on your estate and potential inheritance for beneficiaries.
Check how equity release may affect your entitlement to means-tested benefits.
Compare different providers and products for the best fit.
Seek independent financial advice from a qualified adviser registered with the Financial Conduct Authority.
Ensure the provider is a member of the Equity Release Council for added consumer protection.
Key Steps in the Equity Release Process
Consult an independent financial adviser to discuss your needs and options.
Receive an illustration and personalised advice on suitable products.
Apply for the chosen equity release plan through the provider.
The provider arranges a valuation of your property.
Legal work is completed (usually with a solicitor experienced in equity release).
Funds are released, and you begin to benefit from your plan.