If you are aged 55 or over and a homeowner, then equity release is a way for you to access the wealth tied into the value of your house, without having to sell your property or move out. All money raised through equity release is tax free. An equity release loan lasts until the house is sold - either when you die or move into permanent care - so it is a big commitment.

Equity release mortgages have no fixed term and come with a ‘no negative equity guarantee’, meaning that neither you or your family will be liable should the mortgage debt exceed the value of the property. Those who choose an equity release product can take the money as a lump sum, several smaller payments or a combination of the two.

You can raise money from an equity release loan for:

  • Gifting/early inheritance
  • Holidays
  • Home improvements
  • New car
  • Pay off a ‘standard’ interest only mortgage
  • Pay off a previous (more expensive) equity release mortgage
  • Buy a more expensive home
  • Debt consolidation
  • Supplement income
  • Inheritance tax planning
  • Divorce settlement

There are two types of Equity Release:

Lifetime Mortgage

This is in effect an interest only mortgage, but you do not have to make any payments towards the interest (although you can if you want to). The interest compounds and then when you die or move into long term care, the property is sold, and the debt is repaid. The property remains in your name until it is sold.

Home Reversion Plan

A home reversion plan is significantly different to a lifetime mortgage. With these, a home reversion provider buys a percentage (or all) of your property (at less than market value) and in return gives you a tax-free cash lump sum. The homeowners are then given a lifetime tenancy that enables them to live rent-free in the property for the rest of their lives.

By selling a percentage of the value of your house, part of its final value is protected for your beneficiaries. When the last homeowner dies or moves into long-term care, the house is sold, whereupon the respective percentages are then divided accordingly between the lender and beneficiaries.

A lifetime mortgage ensures that you always own your home whereas a home reversion plan requires you to sell part (or all) of it to a 3rd party. Currently, we do not see any benefits to a home reversion plan over a lifetime mortgage and so we DO NOT advise on them.

Equity release offers safeguards that traditional mortgages do not and it is a good idea to understand what these are while you are thinking about taking out an equity release plan. For example, most plans do not require any repayments and, as such, you cannot get into arrears, default or have your home repossessed for non-payment.

The new breed of plans also come with a wide range of features and options, which you can tailor to create a plan that is right for you, both now and in the future. It’s always a good idea to talk through these with your adviser but these include -

  • Plans with fixed interest rates for life, meaning you'll always know how much you must repay in the future.
  • Fixed early repayment charges, knowing exactly what the penalty may be, if you wish to repay your plan early.
  • Plans allowing you to make ad-hoc voluntary payments which could help to manage the future balance.
  • Compassionate early repayment charges, allowing penalty-free repayment of a plan within three years of a partner dying or moving into long-term care.
  • Downsizing protection which means that you can repay your equity release plan penalty free and move home once your plan been in place for at least 5 years.