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 £225,000, then your equity is £75,000.

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 take advice from an independent financial adviser before you do it.

How do equity release products work?

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 charges on your mortgage, but these can be paid either when you die or sell your home for elderly care.

A home reversion plan is different, in that you’re essentially selling a stake in your home, usually at a much lower rate to the market value. However, you can continue living in your home without making repayments. The debt is collected once the house is sold.

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.

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.

There are three types of lifetime mortgage:

  • The roll-up: 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 then take a lump sum and can draw down further funds in stages.
  • The flexible lifetime mortgage: this is like a roll-up plan, except that you can make voluntary repayments. You can usually repay up to 10% of the initial amount borrowed each year without any early repayment penalties. 

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 most suitable for people aged over 70.

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.

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.

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 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.

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’ll likely be hit with big early repayment charges. These are usually calculated based on the amount you borrow, with transaction costs on top. 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.
  • You’re likely to have to pay legal, valuation and set-up costs too.
  • The interest can build up quickly, meaning the debt increases over time.

Frequently asked questions

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. For home reversion, you may need to be 60 or 65.
  • 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.

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.

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.

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.

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. Remember, the earlier you start, the more it’s likely to cost in the long term. 
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. You’ll still be able to live in your current home, without making further payments, but you’ll have less to leave behind. 
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 independent financial adviser. All advisers recommending equity release options must have a specialist qualification. The advisers at our partners 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.

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

Mark Gordon

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 a free 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