Equity release is a class of financial services helping you to access the equity (cash value) of your home, while you’re still living in it. It’s available if you are over 55 and can be taken as a lump sum, in several smaller amounts or as a combination of both.
Effectively, you are borrowing money against the value of your house and repaying nothing until it is sold—typically on your death or when you move into a retirement home.
It is guaranteed that you will not have to pay back more than the original value of the house; if you live longer than expected, or the value of the property drops, any difference is absorbed by the lender. The lender is effectively gambling that house prices will continue to rise.
In a lifetime mortgage, one of the two main type of equity release, you take out a mortgage secured on your property provided it is your main residence, while retaining ownership. You can choose to ring-fence some of the value of your property as an inheritance for your family and can make some repayments or let the interest roll up. The loan amount and any accrued interest is paid back when you die or when you move into long-term care.
In home reversion, the other type, you sell part or all of your home to a home reversion provider, in return for a lump sum or regular payments. You have the right to continue living in the property until you die, rent free, but you have to agree to maintain and insure it. You can ring-fence a percentage of your property for later use, possibly for inheritance.
At the end of the plan your property is sold, and the sale proceeds are shared according to the remaining proportions of ownership.
What’s Best For You?
With a lifetime mortgage, you can normally borrow up to 60 percent of the value of your property, dependent on your age and its value.
With home reversion you’ll normally get between 20 percent and 60 percent of the market value of your home (or the part you sell). You should check whether or not you can release equity in several payments or in one lump sum.
It’s a complex proposition, and before considering equity release, you should take advice from an independent financial adviser who is a member of the Equity Release Council.