Equity release

We’ve partnered with Responsible Equity Release to offer lifetime mortgages approved by the Equity Release Council.

What is equity release?

Equity release is a way of using your home to generate income – without having to downsize. Equity release mortgages work by allowing you to unlock the equity in your home in the form of a tax-free lump sum payment or payments.

What is equity?

Equity is the share of your home that you own outright. You can work out how much equity you have by deducting your remaining mortgage from the property’s value.

So, if your home is worth £300,000 and the outstanding amount you owe is £100,000, then your equity is £200,000.

Another way of using equity is to borrow against some of it to raise cash – a process known as remortgaging.

Releasing equity is a big financial commitment. You’ll need to think carefully about its implications and ensure that you receive impartial financial advice before you do it.

Who qualifies for equity release? 

You may be eligible for equity release in the form of a lifetime mortgage if: 

  • You’re a homeowner over the age of 55 – and if you’re borrowing jointly you both need to be over 55. 
  • Your home is worth at least £70,000.
  • Your home is in reasonable condition.
  • The home you want to release equity from is your permanent main residence and lived in by you for over six months of the year.
  • You own the home you want to release equity from.

Why would I release equity in my home? 

You can use money from equity release for anything from improving your property, to gifting an early inheritance or clearing an existing mortgage (but be aware there might be cheaper ways to borrow money). The money doesn’t need to be paid back until the last homeowner on the deeds dies or goes into long-term residential care.
If you have a beloved family home you don’t want to sell – but you need more money for your retirement, for example – equity release could work for you.

Equity release calculator

Types of equity release 

There are two equity release options: a lifetime mortgage or a home reversion plan.
With a lifetime mortgage, you secure funds against a portion of your home’s value. There are usually limits on the percentage you can borrow. Like other loans, there will be interest added to your mortgage, but you don’t need to make any payments until you either die or enter permanent long-term care. After which, the amount borrowed plus interest will be repaid with the sale of the home.

A home reversion plan is different, in that you’re essentially selling a stake in your home, usually at a rate much lower compared to its market value. There are no payments to make with these either, and again the debt owed will be repaid once the house is sold.

What is a lifetime mortgage?

A lifetime mortgage is the most common type of equity release option. With a lifetime mortgage, you continue to own your home while borrowing money secured against it.

Lifetime mortgages are designed to run for your lifetime with no monthly repayments. Interest is charged on the amount you release and this is usually fixed for life. 

Types of lifetime mortgage: 

  • The lump sum: you get a one-off, tax-free lump sum from your home. You don’t make regular repayments, but the interest is added to the loan. This, along with the initial loan, will be repaid when your home is sold.
  • The drawdown: you agree the total sum you can borrow with the equity release provider. You can then release an initial amount and keep the rest in an interest-free reserve to be accessed in instalments.
  • Flexible features are available: whether you release your equity as a lump sum or with a drawdown, there will be a variety of flexible features that could be available. You could make optional repayments, usually up to 10% of the initial amount borrowed per year, or pay the interest each month. An equity release adviser will be able to tell you more about the features on offer. 

Things to consider when taking out a lifetime mortgage 

How much you can borrow
The amount that you can borrow is dependent on your age and the value of your home. The older you are, the more you can release, normally up to a limit of 60% of the home’s value. Make sure that you speak to an adviser about the different products available, as this could vary between providers. Sometimes, the amount that you can borrow can also be impacted by your health and whether you have any medical conditions.

Do you want it in a lump sum or not?
You can take the mortgage amount either in one lump sum, or in smaller regular amounts. The lump sum might seem like the more attractive option, but if you don’t actually need it in one go, you’re better off taking it in chunks. That’s because you only pay interest on the amount you actually withdraw. So, don’t take it until you need it.

Will you pay any of the interest?
While you don’t have to, you can choose to pay some of the interest as you go, to save on the overall cost when you move into care, or to preserve the value of your estate for your beneficiaries when you die.

The loan rate
Make sure you compare rates when looking for the right lifetime mortgage. Depending on how long you continue to live in your home for, this can make a big difference, as the interest can build up significantly over a long period of time.

Look for a no-negative-equity guarantee
A no-negative-equity guarantee means that, in the unlikely event that the property’s value has fallen to the point that the sale isn’t enough to cover the outstanding loan, your estate (and therefore your beneficiaries) won’t be held responsible to make up the difference. The difference will instead be written off.

Are you likely to move again in future?
If you think you might move to another home in later life, after you’ve taken a lifetime mortgage, you need to be very careful. A lifetime mortgage usually sees you until you either die or move into long-term care, but it is possible to move to another permanent residence. However, you’ll need to get in touch with your lifetime mortgage provider and make sure they’re happy with the property you’ll be moving to, as that’s the home that’ll now be secured against your loan.

What is a home reversion plan?

A home reversion plan is a type of equity release, but it works in a different way from a lifetime mortgage and is not suitable for everyone.

With a home reversion plan, you continue to live in your home but you sell part or all of it to the reversion company. You then get a regular income and/or a tax-free lump sum. When your home is sold, the reversion company will take its share of the proceeds.

You don’t pay any rent but you won’t get the full market value of your house. The price you get will depend on your health and your age. 

What to consider when taking out a home reversion plan 

Are you old enough to qualify?
Some providers have a minimum age requirement, in order to qualify for a home reversion plan. Make sure you look around, as these age requirements can vary.

How much can you get?
Obviously, this depends on your home’s value, but it’s also about the percentage of that value that your provider is willing to offer. This varies between different plans, so make sure to shop around. Usually, the best offers are available to older applicants.

A lump sum or regular payments?
Either way, make sure that your provider is willing to offer you the money in the way you need it.

Are you going to move again?
If you think there’s a chance that you could move again (other than moving into long-term care), then you’ll need to make sure that your potential new home is acceptable to your home reversion plan provider. This is because the balance will be transferred and held against the new property

If you’d like advice on a home reversion plan, you can find a qualified adviser at unbiased.co.uk.

Compare the Market’s equity release partner Responsible Equity Release don’t advise on home reversion plans.

How much does equity release cost? 

The cost of equity release depends on the way you’re releasing the equity: 

Lifetime mortgage

The cost of a lifetime mortgage depends on the interest rate attached to the amount you’re releasing. These, just like with standard mortgages, vary between providers, but they’re often higher than standard mortgage rates. To give you a rough idea, rates between 3-5% are pretty normal.

When a lifetime mortgage can get expensive, is if you let the interest compound over time. As we mentioned earlier, you’re not forced to make any repayments, but not doing so allows the interest payments to grow exponentially.

For example. If you took £50,000 at 3% on a £200,000 home at the age of 60, and didn’t pay off any of the interest, you’ll owe about £67,000 by the time you turn 70. By the time you reach 80, you’d owe around £91,000.

An equity release adviser will be able to create a personalised illustration for you, before you make the decision to move forward with a lifetime mortgage. With most lifetime mortgages having fixed interest rates for life, the illustration will show you exactly how much you might owe in the future, if you don’t make any payments.

Home reversion plan

This doesn’t have a cost associated to it, as you’re simply selling a portion of your home to the provider. However, you might consider the value you receive as a form of cost. For example, take that £200,000 home we mentioned earlier. If you sold a stake in the property for £50,000. That would be 25% of your home’s value. However, on a home reversion plan, you wouldn’t receive £50,000 for that 25% stake, and would in fact have to sell a much higher stake to receive that kind of money.

Equity release interest rates

Usually, lifetime mortgages offer higher rates of interest than standard fixed-rate mortgages. You can expect to find interest rates of around 3-5%, but these vary from one provider to the next. It’s a good idea to shop around and find the best interest rate for you. An adviser will be best placed to tell you what the interest rate will be based on your age and the amount that you want to release.

What are the advantages of equity release?

Equity release has a number of benefits, depending on your personal circumstances:

  • You can stay in your home for life or until moving into long-term residential care.
  • You get the financial freedom offered by a lump sum or regular payments, or both.
  • Unlike a regular mortgage, there are no monthly payments to be made.
  • You won’t have to repay the loan until the last homeowner on the deeds dies or goes into care.
  • Lifetime mortgages often offer a no-negative-equity guarantee. All the lifetime mortgages available through Compare the Market’s partner Responsible Equity Release are from Equity Release Council-approved lenders, so will have this guarantee. You’ll have peace of mind knowing your loved ones will never inherit any lifetime mortgage debt.

What are the disadvantages of equity release?

There are downsides to equity release:

  • As you’re accessing some of the value of your property, there will be less left for your estate when you die. So, it might affect what you can leave as an inheritance. However, plans are available that help you control the effects on your estate.
  • Releasing equity could affect your entitlement to means-tested benefits and help from your local authority.
  • The lender will require your home to be in good condition, so you’ll need to be able to pay to keep it this way.
  • If you change your mind about a lifetime mortgage and want to repay it, you might be hit with big early repayment charges. These are usually calculated based on the amount you borrow, with transaction costs on top. Some lenders however will offer the option to have fixed and defined early repayment charges, so you won’t be blindsided if you choose to repay. You need to be aware of them before you enter into an equity release agreement.
  • You’ll lose out if the value of your home rises, as you’ll only be given the originally agreed sum.
  • The interest can build up quickly, meaning the debt increases over time.

Is equity release safe? 

Equity Release is regulated by the Financial Conduct Authority (FCA). Plus, the Equity Release Council has a code of conduct for safeguarding customers that goes over and above FCA Regulations. 

In terms of whether it’s safe for you personally, there are a number of things you can do to protect yourself better: 

  • Get as much advice and information as possible – equity release can be complicated, particularly for anyone new to the idea. To ensure that it’s the right move for your personal situation, you might want to discuss it with a fully qualified equity release adviser.
  • Use a lender who’s part of the Equity Release Council – this is important to secure a no-negative-equity guarantee, which will protect your estate from owing more than your home’s value. Thankfully, all lifetime mortgages offered by Compare the Market’s FCA-authorised equity release partner Responsible Equity Release are from lenders approved by the Equity Release Council.
  • If possible, don’t take all the money in one go – while it might sound great to get a huge amount in a lump sum, don’t do it unless you have to. The more you release and borrow, the more expensive it’ll be. That’s because the interest will kick in as soon as you take the money. However, you can take it in smaller chunks by using an interest-free reserve, which will make it cheaper in the long run, while still providing you with the same amount overall.

Is equity release the right option for me? 

Whether equity release is the best move for you depends on your situation. While there are short-term benefits, the long-term consequences can make it less attractive. It’s important you consider your current age, income and standard of living, and how equity release will affect your plans for the future. 

Your age
Remember, the earlier you start, the more it’s likely to cost in the long term.

Your income and standard of living
If your income is lower than it used to be, whether that’s because you’ve gone part time or retired, you may need a financial boost to maintain your standard of living. Equity release can help replace the lost income and keep you going into retirement.

How much will you get?
Obviously, this is an important one, and will likely be one of the main points to consider when deciding if equity release is the right move for you. Naturally, your home’s value is the main factor here, but you should know that, with a lifetime mortgage, you can’t borrow against the full value of your home. Comparing different equity release options can help you get the most for your home, as different lenders may offer different percentages of a property’s value.

Your future
If you feel like you’re very likely to remain in your current home and have no family who will inherit from your estate when you die, equity release can offer you a large sum to live comfortably or fulfil a lifelong dream that you perhaps wouldn’t otherwise have been able to.

Your family’s future
You should know, while you’ll still be able to live in your current home, without making further payments, releasing equity in your home will leave less for your family once you’re gone. If you’re in a situation where you’re able to live comfortably in retirement, have a family you may want or need to provide for when you’re gone, or may need to sell your home for any reason, such as to fund moving into care, then releasing equity from your home may not be the best move for you.

Taking out an equity release product is a complicated decision with lots of factors to take into account, so you should take financial advice from an equity release adviser. All advisers recommending equity release options must have a specialist qualification. The advisers at our partner, Responsible Equity Release are fully trained, FCA-registered and members of the Equity Release Council.

What are the alternatives to equity release? 

If equity release doesn’t appeal to you, there are other options: 

Moving home

If you need to raise money and have a valuable home, simply selling up and downsizing may be a great option. Alternatively, moving to a less expensive area could free up some extra money, without sacrificing the size of your home.

Stay in, or return to, work

If you’re worried about your retirement income, you could consider remaining in, or returning to, work to provide you with a regular income.

Taking out a home improvement loan 

If you want help with funding an extension or a renovation, you could look at a home improvement loan. These can be secured against your home but are also available without any collateral.

Frequently asked questions

Can I sell my home if I have equity release?

If you have equity release, you can still sell your home. Lifetime mortgages are portable so you can move home as long as the new home you choose is acceptable to the lender.

Looking for other ways to release equity from your home?

An equity release mortgage isn’t the only way to use the equity in your home. You could consider:

Remortgaging your home

Remortgaging to get a better deal can help you save on interest payments or free up cash for home renovations, for example.

Taking out a second mortgage

A second mortgage is a loan secured on your property that’s taken out in addition to your mortgage. It’s a way of raising money against your property, but interest rates will often be higher on a second mortgage.

Can I get an equity release mortgage through Compare the Market?

We work with Responsible Equity Release. They’re authorised and regulated by the FCA, and are members of the Equity Release Council. Their network of fully trained, specialist advisers can help you find the right lifetime mortgage for you.

Looking for equity release advice?

All providers offering equity release products must give you advice, ensure that equity release is right for you and that the products suggested are suitable for your needs and circumstances. Equity release advisers must be appropriately qualified.

We’ve partnered with Responsible Equity Release to offer lifetime mortgages approved by the Equity Release Council.

Go to Responsible Equity Release

Tobi Owens

From the Mortgages team

What our expert says

“Equity release can be a solution if you need money to, say, supplement your retirement income and don’t want to downsize. However, make sure you fully understand the agreement you’re entering into and all the possible downsides as well as the benefits.”

What do I need to get a quote?

Getting a quote from Responsible Equity Release** is a simple four-step process:

  • Use the free calculator to find out how much could be available to you
  • Responsible Equity Release will send you a guide to equity release
  • Call, email or chat with the Information Team about any questions you may have
  • Once you’re ready, have the Information Team book you a free initial phone appointment with a qualified equity release specialist.

**Responsible Equity Release are not part of Compare the Market Limited. Compare the Market receive a % of the commission that our partner Responsible Equity Release earns.

Go to Responsible Equity Release