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A guide to equity release

Find out how much money you could release from your home using the Equity Release Calculator provided by HUB Financial Solutions or call them on 0808 2398485.

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Michelle Monck

Michelle Monck

Consumer Finance Expert

What is equity release?

Equity release is a way to unlock cash trapped in your property, tax-free while remaining in your own home. It is for property owners aged at least 55 and the most popular form of equity release is a lifetime mortgage. A less common form of equity release is a Home Reversion Plan. In this guide we will focus on lifetime mortgages only.

Watch our video to explain more about equity release:

What is a lifetime mortgage?

A lifetime mortgage is a type of equity release. You borrow a set amount of money and use your property as security. Unlike a standard mortgage, there is no need to make monthly payments towards the loan as you can choose to let the interest roll up over time. This means the interest is added to your original loan and to any interest already accrued and this means your debt will increase over time. Some lifetime mortgages will now allow you to make monthly payments and payback some or all of the interest. Other plans permit penalty free partial repayments up to usually 10% annually.
When you die or go into long term care the loan needs to be repaid including the interest. This is usually done through the sale of the property.

Find out more about interest-only lifetime mortgages.

How does equity release work?

The most common form of equity release is a lifetime mortgage. This can usually be accessed from age 55 onwards and can be a way of supplementing your retirement income using the value tied up in your home. Your equity release or lifetime mortgage lender will decide how much you can borrow depending on your age and the property’s value. Some lenders can even take into account your medical history and may be able to lend you higher amounts than are available through standard lifetime mortgages. The maximum amount they can lend to you is dependent on the plan you choose. In addition, the amount available will also depend on the age of the borrower with the highest LTVs available to older borrowers. Interest rates on lifetime mortgages are usually higher than a standard mortgage, often ranging from around 4% up to 7%. The rate must be fixed or if it is a variable rate there must be a cap or upper limit for the life of the loan. If you want the option to make monthly repayments to your lifetime mortgage your lender will need to check these are affordable for you. Making monthly repayments will reduce the interest costs incurred on your lifetime mortgage.

You should check if your equity release product allows drawdowns or if it is a lump sum plan. To drawdown funds means you access your cash in stages rather than all in one go. The advantage of this is that for a lifetime mortgage you only drawdown the cash you need reducing your interest cost compared to drawing down a larger sum in one go. Some equity release providers may set a minimum amount for each drawdown.

Lifetime mortgage lenders that are members of the Equity Release Council, offer a no negative equity guarantee. This means that when your property is sold, your family or those inheriting your estate will not be responsible for any shortfall between the sale value and the amount owed using equity release. Your estate will not be responsible for covering any losses.

Some lifetime mortgages allow you to protect a percentage of your home's future value. This can then be passed onto your loved ones when you pass away.

The best equity release rates - September 2021

We've compiled the best equity release rates at a minimum of 30% and 40% LTV. See the full list in our best equity release rates news story. 

Type of lifetime mortgage

Lender

Plan name

AER (APR)

Minimum property value

Max LTV (%)
 at age 70

Fee

Minimum 30% LTV with a fee

Legal & General Home Finance

Flexible Orange

2.82%
(2.90%)

£70,000

30.70%

£599

Minimum 30% LTV without a fee

Legal & General Home Finance

Flexible Orange

2.86% (2.90%)

£70,000

30.70%

No fee

Minimum 40% LTV with a fee

Legal & General Home Finance

Flexible Indigo

3.56%
 (3.60%)

£70,000

41.2%

£599

Minimum 40% LTV without a fee

More 2 Life Ltd.

Capital Choice Max 2 Drawdown

3.42%
 (3.50%)

£100,000

40.03%

No fee

Source: Moneyfacts 17 June 2021. The products chosen have been selected from equity release products available to joint applicants and are based on a scenario where the youngest borrower is aged 70. The deals selected all offer drawdown, and as such there may be cheaper rates available on deals providing a lump sum only.

Am I eligible for equity release?

You must own a property in the UK to be eligible for equity release. There are also minimum requirements for your age, the value of the property and how much you want to borrow. You will not need to complete an affordability assessment for a lifetime mortgage and equity release lenders will consider those with a poor credit history.

The minimum age for equity release starts at 55

Equity release providers offering lifetime mortgages usually require a minimum age of 55. If you are below the age of 55 and already retired then you could consider a retirement interest only mortgage instead. If you are a couple looking for equity release and only one of you is over the minimum age, you could still get an equity release product, but the younger partner would need to be removed from the deeds.

The location of your home is a factor

The broad rule for your property to be considered for equity release is that it is in the UK. However, like standard mortgages, there are more lenders available for properties located on the mainland versus those lending in Northern Ireland and the Channel Islands and the Isle of Man are often excluded.

The value of your property must be at least £70,000

Your property must be worth at least £70,000 and be in good condition to qualify for equity release. If it does not meet the standards required, you may be declined for an equity release loan. If your property needs essential repairs then you may need to fix these. When you take a lifetime mortgage you will be responsible for the maintenance, up-keep and insurance of your property.

You have a poor credit history

Equity release lenders will consider a poor credit history, but your acceptance will be dependent on the terms and conditions of the lender and the nature of your credit history issues. If you are bankrupt you may not be accepted for equity release, however there are some lenders who will accept county court judgements (CCJs) and an adverse credit history.

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HUB Financial Solutions Equity Release Advice

 

How much do you know about equity release?

Speak to the team today to find out if equity release could be right for you.

 

Call 0808 239 8485 or find out more.

Lines are open Monday to Friday 9am to 5pm excluding bank holidays

Calls may be monitored for regulatory purposes.

How can equity release be used?

How you choose to spend your cash is up to you, but equity release is often used to help supplement a pension, to buy a new car, make home improvements or to refit a home to suit changes in mobility or to go on holiday. Sometimes those using equity release may also choose to gift money to their family members, for example contributing to a deposit for a house and helping their grandchildren get onto the property ladder.

What are the costs of equity release?

A lifetime mortgage equity release product charges interest at rates around 4% up to 7%. While this is higher than a conventional mortgage it is the effect of compound interest over many years that really increases the cost of equity release.


For example, if you borrowed £80,000 at 4% you would accrue £3,200 in interest in year one. At the end of year one this interest is added to you loan, now totalling £83,200 and you would accrue interest on this amount. At the end of year two you would have an additional £3,328 in interest to add to your loan. After seven years you would accrue £25,274 in interest and owe £105,274.


There is good news though, you can cut the costs of equity release by choosing a product that allows you to pay back some or all of your interest. And, the no negative equity guarantee available on lifetime mortgages from lenders that are members of the Equity Release Council, means that once you go into long term care or after you have passed away, neither you or your beneficiaries will have to make up any shortfall should your property be worth less than your total debt.

Other equity release fees

In addition to interest costs you will also have to pay other fees to get an equity release product. These can include:

Valuation fees

Just like a mortgage the equity release lender needs to obtain a valuation of your home. This can range from a quick inspection through to a more detailed assessment. The lender will also want to know how other property nearby has sold and the prices they have obtained.

Arrangement fees

Some lenders may include an arrangement fee for your equity release product. These can range from £500 - £1000. Some lenders offer fee free packages but usually at a higher interest rate.

Advice fees

You need to receive advice from a qualified financial adviser to get equity release. Different brokers charge fees in different ways, this may be a percentage of the loan amount or a fixed fee. 

Solicitor fees

You will need a solicitor to make sure your equity release is managed correctly and any change in ownership is documented correctly.

Early repayment charges

Lifetime mortgages are designed as a long-term arrangement with repayment made on the sale of the borrower’s home when they die or move into long term care. If you decide you no longer want the mortgage and decide to pay it back earlier you could incur an early repayment charge. These can be expensive ranging from 3% up to 25% of what you have borrowed. Some lenders will waive the early repayment charge for those who settle their lifetime mortgage due to moving home. There are no early repayment charges if you die or move into long-term care. Some lenders will allow the lifetime mortgage to be repaid when the first borrower dies if the remaining borrower wishes to move home and redeem the lifetime mortgage.

Why is equity release more expensive?

A lifetime mortgage (the most common type of equity release) is more costly than a traditional mortgage, for example in August 2021 the average rate for a traditional residential mortgage is 2.68% compared to 4.37% for a lifetime mortgage (20 August 2021). There are three reasons why a lifetime mortgage is more expensive than a conventional mortgage:

  1. Lenders do not know when they will get their capital back, unlike a conventional mortgage with a set repayment schedule
  2. Lenders are also less likely to receive any cash back for the money lent out, equity release allows borrowers to not make regular or monthly payments at all
  3. The no negative equity guarantee – the lender needs to include a buffer to make sure they are not hit by any potential losses from a reduction in property values

Is equity release safe?

Equity release providers are regulated by the Financial Conduct Authority and increasingly many are members of the Equity Release Council. This trade body has a set of regulations designed to make sure consumers are protected when using equity release products from their members.


Some of the safeguards for consumers include the no negative equity guarantee and security of tenure. This means that when borrowers use a lender that is a member of the Equity Release Council they will never owe more than the value of their property when it is sold following their death or moving into long term care. They can also be assured that they can live in their home for as long as they wish. Furthermore, equity release can only be obtained following financial and legal advice and unlike a traditional mortgage it has no risk of repossession (if T's and C's are met).

Pros and cons of equity release

  • Access tax-free cash tied up in your property
  • No risk of repossession if T&Cs are met 
  • You get to stay in your own home
  • Option to take a lump-sum or drawdown funds as needed (lifetime mortgage only)
  • No negative equity guarantee means you will never owe more than the value of your house when this is sold following your death or moving into long term care
  • Interest costs for a Lifetime mortgage builds over the years (unless you choose to repay all of the monthly interest)
  • Interest rates are usually higher than Retirement Interest Only mortgages
  • Your beneficiaries could see their inheritance eroded through interest costs or through having a smaller share of the property
  • The amount you can borrow is less the younger you are

The importance of professional advice

Professional financial and legal advice is essential when considering equity release. Receiving advice is a mandatory part of the process but a good adviser will also talk to you about what you are wanting to achieve with the money, the potential alternatives, such as down-sizing and any risks and upsides of the alternative products available. In summary your adviser will:

  • Consider if equity release is right for you and suggest alternatives if not
  • Tell you which type of equity release is most suitable for you, for example draw down, interest servicing or the option to make adhoc interest repayments
  • Share with you a personalised illustration showing you the overall cost and fees, what happens if you don’t want equity release anymore, a description of the provider and the product including an interest rate for lifetime mortgages, any additional product features and what you have said you want to release in funds and the type of product you are interested in
  • Identify those providers who offer the product features most important to you, such as avoiding early repayment charges if you wish to payback your loan, no negative equity guarantees to make sure you never owe more than you borrow when the property is sold following your death or going into long term care and how to protect your beneficiaries inheritance
  • Help your family to understand how equity release works and any impacts it may have on their inheritance
  • Find the best interest rate for your circumstances and credit history

Some financial advisers will use a panel of equity release providers from which they will select the most relevant provider for you and your circumstances. Different advisers may have different providers that they work with. 

Speak to an equity release adviser

Our preferred borrowing advisers, HUB Financial Solutions are equity release and borrowing specialists, and can help ensure that releasing equity from your home is the right decision. 

Does equity release affect tax credits, benefits or pension entitlement?

Equity release may affect your eligibility for tax credits or benefits, this is because many of these benefits are means-tested. Having a certain amount in your savings or additional income can change what you are entitled to. Your financial adviser should be able to help you understand if this will be a risk.
However, your state pension typically won't be affected, as this is an entitlement for everyone over state pension age, depending on your National Insurance record.

Is equity release ever a bad idea?

Taking out a lifetime mortgage can be a lifeline for those who may not have a decent pension pot, or who aren't willing or able to downsize into a smaller property. As long as you fully understand the process – including the type of lifetime mortgage you're getting, how interest is charged and how it can impact everything from inheritance tax to state benefits – it could prove to be a viable way to boost your bank balance in retirement.
That said, releasing equity from your home isn't a decision to enter into lightly, which is why you'll need plenty of support to determine if it's the right course of action for your particular needs. You should thoroughly discuss it with your children as it'll affect the amount of inheritance you leave behind, but you'll need to seek suitable equity release advice, with this being a vital part of the process.

What are the alternatives to equity release?

Retirement interest only and later life mortgages are an alternative to equity release lifetime mortgages. Find our more about how they work in our guide. 

Alternatives to equity release

Equity release is just one option to help boost your income in retirement. There are plenty of alternatives...

Continue to work part-time

There's nothing to say you have to stop when you reach state retirement age, and a growing number of people are choosing to stay in the workplace.

Maximise your savings

Are your savings and investments working as hard as they can? You can also compare savings accounts using our charts.

Downsizing

You could consider downsizing your property to a smaller one which should be cheaper than your current one. This effectively will release some equity, but without any borrowing involved.

Annuity income

If you want the assurance of a regular guaranteed income then you should look to find the best, personalised annuity rate.

Are you receiving the benefits you are entitled to?

Make sure you get all the benefits you're entitled to. You've worked hard all your life, so check that you're getting all the state benefits you're entitled to.

Equity release and death FAQs

What happens to my equity release after I die?

If you have taken a lifetime mortgage, then this will need to be repaid when you die (or if you go into long-term care). If you have taken a lifetime mortgage in joint names, then it will be on the death of the second partner when this will need to be repaid. Usually your home will be sold, and the proceeds used to pay back the lifetime mortgage. Any money that is remaining will form part of your estate.
Your beneficiaries will need to contact the lifetime mortgage lender and provide a copy of the death certificate and probate document. The lifetime mortgage lender will then deal with the executors of your estate (or the estate’s administrators if you die without a will) to discuss how the lifetime mortgage will be repaid. There is sometimes the option for beneficiaries to settle the lifetime mortgage debt using other assets and not just by the sale of your home.

How quickly must a lifetime mortgage be paid back after I die?

Generally, lifetime lenders will want a lifetime mortgage repaid within 12 months of your death.

Can my partner stay in our home after my death?

If you have taken your equity release in joint names, then the surviving partner can remain in the home until their death or when they need to go into long-term care. It is also possible downsize and for a surviving partner to move to a new property without having to pay back the lifetime mortgage. The lifetime mortgage lender will need to agree to this and that the new property provides sufficient equity to cover the outstanding lifetime mortgage.

 

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HUB Financial Solutions Equity Release Advice

How much do you know about equity release?

Speak to the team today to find out if equity release could be right for you.

Call 0808 239 8485 or find out more.

Lines are open Monday to Friday 9am to 5pm excluding bank holidays

Calls may be monitored for regulatory purposes.

 

Note

The Equity Release Service is provided by HUB Financial Solutions Limited. HUB Financial Solutions Limited. Registered office: Enterprise House, Bancroft Road, Reigate, Surrey RH2 7RP. Registered in England and Wales no. 05125701. HUB Financial Solutions Limited is authorised and regulated by the Financial Conduct Authority. Part of Just Group plc. Moneyfacts.co.uk itself is not authorised by the Financial Conduct Authority for equity release business, so we refer our customers to HUB Financial Solutions’ regulated service.

 

Any legal or contractual relationship will be with HUB Financial Solutions. There may be a fee for mortgage advice. Your adviser consultation appointment is FREE and carries no obligation. If you choose to proceed with a recommended product, an advice fee of £1,100 would be payable upon completion. Moneyfacts.co.uk will receive a  commission from the lender. HUB Financial Solutions does not offer advice on investments.

 

Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. Moneyfacts.co.uk will receive a small payment either if you click the links or if you use their services after you click through to their site. All information is subject is subject to change without notice. Please check all terms before making any decisions.

Disclaimer

All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts.co.uk will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts.co.uk recommends you obtain independent financial advice.

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