Equity release

Lifetime mortgages

By far the most common form. You borrow against your home and keep full ownership. Interest usually rolls up rather than being repaid monthly, and the loan plus interest is repaid when you die or move into long-term care. Many plans now allow optional interest or capital payments, which reduces the eventual balance considerably.

Home reversion plans

You sell a share of your property to a provider for less than its market value, and keep the right to live there rent-free for life. Less common, and the minimum age is usually 60 or over.

How you take the money

Plans generally offer a choice of:

• A single lump sum.
• A regular income.
• A drawdown facility, where an agreed amount is reserved and you take it in stages — interest only accrues on what you have actually drawn, which usually makes this the cheapest option.

Check the effect on your estate

Our free inheritance tax calculator shows your estate’s current exposure, which is the figure equity release changes most directly.

Equity release may be worth considering if:

• You are aged 55 or over — 60 or over for home reversion plans.
• You own a UK property, typically worth at least around £70,000.
• You want to free up cash for retirement income, a major expense, or gifts to family.
• You plan to remain in your home for the foreseeable future.
• Your home is mortgage-free, or has a small remaining balance the release can repay.

• Access tax-free cash — the money released is not treated as income, so there is no income tax on it.
• Stay in your home — no need to downsize or move away from where you live.
• Flexible options — lump sum, regular income, or a drawdown facility taken in stages.
• No negative equity guarantee — plans from Equity Release Council members ensure you can never owe more than the value of your home, so the debt cannot pass to your estate.

Reduced inheritance. Releasing equity reduces the value of your estate, and therefore what your beneficiaries receive. This is the trade-off at the heart of the decision and it deserves a family conversation, not just a financial one.

Compound interest. Where interest rolls up rather than being paid, the balance grows each year on the previous year’s total. Over twenty years or more the amount owed can be several times what you borrowed.

Impact on benefits. Holding released cash can affect means-tested benefits such as Pension Credit and Council Tax Support. Releasing money you do not immediately need can therefore cost you elsewhere.

Fees and early repayment charges. Setting up a plan involves valuation, legal and advice fees, and repaying early can trigger charges that are sometimes substantial.

• Interest rates on lifetime mortgages are typically higher than standard residential mortgage rates, and are usually fixed for life.
• Set-up costs — advice fees, property valuation and legal costs — commonly total in the region of £1,000 to £2,000.
• Early repayment charges may apply if you repay sooner than the plan allows, though many modern plans include exemptions on death or moving into care.

Rates move with the market, so treat any figure you read as indicative and ask your adviser for current quotes and a full illustration showing the projected balance over time.

• Downsizing — selling and moving to a smaller property releases equity without any borrowing or interest.
• A retirement interest-only mortgage — you pay the interest monthly, so the balance does not grow.
• Personal loans or a conventional remortgage, if the amount is modest and affordable from income.
• Using existing savings, investments or pension flexibility before borrowing against the house.
• Checking benefit entitlements — some households are not claiming what they are already due.

A good adviser will insist on ruling these out before recommending equity release, and will involve your family in the conversation if you want them there.