Drawdown Equity Release & Lifetime Mortgages

Drawdown Equity Release and Lifetime Mortgages | February 2024 

Drawdown equity release, often referred to as a drawdown lifetime mortgage, is a popular financial plan in the UK. This is because it allows homeowners to access the wealth tied into their property in a flexible and controlled manner.

It is considered the most ideal drawdown equity release option by many homeowners, due to its practicality and adaptability to individual needs.

Topics that you will find covered on this page

Understanding Drawdown Equity Release

Drawdown equity release offers a way for homeowners to access the value of their home without making monthly repayments. The total amount borrowed, along with accumulated interest, is then repaid when the homeowner moves into long term care or passes away.

One of the primary features of a drawdown mortgage is the flexibility which it offers. Homeowners can decide when and how much money they want to release, up to a certain limit. This means that they can manage their loan in a cost-effective way which suits their financial requirements and personal circumstances.

Whilst online equity release calculators offer homeowners an estimate of how much they may be able to borrow, it is always best to get a personalised illustration from a qualified adviser. This is because actual amounts will vary depending on individual circumstances.

For those who do not need an upfront lump sum, the drawdown equity release scheme is a preferred choice. Instead, it allows homeowners to draw down money as and when necessary, which can be beneficial for managing future costs.

The Basics of Equity Release in the UK

Equity release in the UK is a way for homeowners over the age of 55 to access the money tied up in their property.

Lifetime mortgages and home reversion plans are the most common equity release schemes. A drawdown lifetime mortgage also falls under the former category.

A lifetime mortgage involves taking out a loan against your home. When the property is sold, the loan secured is repaid, along with the interest.

The drawdown lifetime mortgage is a popular type of lifetime mortgage which allows homeowners to release equity in smaller amounts over time, rather than as a single lump sum.

The appeal of a lifetime mortgage lies in its flexibility. For instance, a drawdown lifetime mortgage allows you to choose to take out a smaller loan initially, then borrow more in the future if necessary.

This approach can help to manage interest roll up and ensure there is money available for future needs.

The equity release lifetime mortgage offers a way for older homeowners to increase their income without having to leave their home. However, it is important to be aware that taking out a lifetime mortgage will reduce the value of your estate and could affect your entitlement to means-tested benefits. 

How Does Drawdown Lifetime Mortgage Work

A drawdown lifetime mortgage works by providing homeowners with an initial loan amount, as well as a reserve facility for any future withdrawals.

Although the initial lump sum is generally smaller compared to other equity release products, it means that further advance can be drawn down from the reserve facility as and when needed.

The interest on a drawdown lifetime mortgage is charged solely on the amounts withdrawn, rather than on any undrawn reserves.

However, interest rates on future drawdowns may differ from the initial rate, as they’ll be based on prevailing market rates at the time of withdrawal. 

One of the key benefits of a drawdown lifetime mortgage is the ability to manage the interest. By taking out smaller amounts over time, you can limit the interest that accumulates.

Therefore, this results in a lower total cost, compared to a lump sum lifetime mortgage plan.

It’s worth noting that the total sum you can borrow with a drawdown lifetime mortgage will depend on various factors.

These include your age, the property value and the equity release product chosen. For this reason, it is recommended that you seek professional advice before deciding to release equity from your home.

Eligibility Criteria for Drawdown Equity Release

The eligibility criteria for a drawdown equity release plan is based on your age, property value, and the type of property which you own.

To be eligible, you typically need to be at least 55 years old and own a property in the UK.

In addition, the property must be both your main residence and in good condition. Any outstanding mortgage or secured loan on the property will need to be repaid either before or at the point of taking out the equity release.

The initial cash sum you receive from the equity release can be used for this.

The amount you can borrow depends on the value of your property and your age. The older you are, the more you can release, and visa-versa. For instance, a homeowner who is 70 can typically borrow a higher percentage of their property’s value, compared to someone who is 60.

Furthermore, it is important to note that although there is no minimum amount which can be released, most drawdown lifetime mortgage providers have a set minimum limit for each drawdown. This is typically £70,000. Some may also charge administrative fees for withdrawals.

Speak To An Equity Release Advisor Or Use the Equity Release Calculator Below To Estimate How Much You Can Borrow

The UK Care Guide works in partnership with Boon Brokers, one of the UKs leading equity release specialists.

You can contact them on 0333 567 1607 , or use the equity release calculator to estimate how much you can borrow.

Here is what Boon Brokers Offer

Whole of market access
Over a decade of experience
Great customer service

5 star client testimonials, on Trustpilot, about Boon Broker’s support and hands-on service

Call Boon Brokers on 0333 567 1607 to discuss your equity release requirements.

.

use the equity release calculator to see how much money you could release from your property. Takes less than 60 seconds!

All equity release and mortgage advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757. 

If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation.  By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.  

The fee we receive is used to help keep this site operational and to produce new content.  

Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

What is equity release flexible drawdown?

A flexible drawdown option in an equity release scheme that refers specifically to a type of lifetime mortgage.

A flexible drawdown lifetime mortgage allows homeowners to release equity from their home in a flexible way, rather than taking it all as a single lump sum.

Here’s  how a flexible drawdown lifetime mortgage works:

1 – Initial Loan Amount

A homeowner can take an initial sum from the equity in their property. This amount is based on several factors, including the property’s value, the age of the youngest applicant, and the specific terms set by the equity release provider.

2 – Cash Reserve Facility

Instead of taking the full amount you’re eligible for at once, the remainder is held in a cash reserve facility. You can draw down from this reserve as and when needed, up to the maximum agreed amount.

3 – Interest Accumulation

Interest is typically rolled up on the amount you’ve released, meaning you don’t have to make monthly payments.

The interest compounds over time.

However, with a drawdown product, interest only starts accruing on the amounts you’ve actually drawn down, not on the total facility available.

This can make the flexible drawdown option more cost-effective in the long run compared to taking a total lump sum at the outset.

4 – Repayment

The loan and accumulated interest are usually repaid when the homeowner either passes away or moves into long-term care. Typically, this is done by selling the property.

5 – No Negative Equity Guarantee

Many providers in the UK are members of the Equity Release Council, which means their products come with a “no negative equity guarantee”.

This ensures that even if the property’s value drops below the amount owed, the homeowner or their estate will never owe more than its sale value.

6 – Flexibility

As the name suggests, the flexible drawdown option’s main advantage is its flexibility.

Homeowners can adapt to changing financial needs by accessing their funds in stages.

When considering this option, it’s essential to consult with a financial advisor specialising in equity release.

drawdown equity release

Advantages of a drawdown lifetime mortgage include:

  • A significant reduction in the cost of equity release, as you only take as much money as you need from your property.
  • Flexibility and freedom – your lifetime mortgage works for you, not the other way around. You’re in control and can adapt depending on your circumstances as your needs change over the duration of the plan. You take out as much as you want, when you want, with fewer restrictions imposed.
  • Reduced impact on inheritance tax – so you’re free to leave a larger amount to family and friends in your will.
  • Accessing this type of equity release scheme may not affect your state benefits in the same way as traditional plans do. As you’re in full control, you can organise your finances so that you won’t miss out on means-tested benefits. 
  • The money you release can be used for any purpose you choose. You may like to use it for care set it aside for funeral costs or make home improvements.
  • You will not have to pay interest on the unused cash facility. 
  • You will retain full home ownership, unlike with a home reversion plan, when the lenders technically own part of your home. 

Drawbacks of equity release drawdown can include:

  • Some providers don’t provide a guarantee on your reserve funds, meaning they could be withdrawn at a later date.
  • Once an agreement is made, your loan provider has a primary legal charge on your property. Upon the sale of your property, they will be repaid first (loan and interest due) – the rest will go to your estate.
  • There are usually minimum limits set on the initial lump sum you can take, and subsequent payments after that can vary depending on the provider, so it’s important to shop around, to find the deal that works in your best interest.
  • Withdrawals may be subject to a higher interest rate than the initial lump sum – something worth considering when you’re deciding how much to withdraw and when.
  • Although a drawdown lifetime mortgage is usually more beneficial from a welfare perspective, it will still affect the value of your estate and may affect your entitlement to means tested benefits.
  • If you decide to repay the loan early, you may be subjected to early repayment charges.

This video explains what the advantages and disadvantages of drawdown lifetime mortgages are.

Comparison Between Drawdown and Lump Sum Equity Release

With a lump sum plan, you receive the full loan amount upfront as a single payment. This can be useful if you need a large amount of money in the short term. However, it is important to note that interest will be charged on the total sum from the outset.

A drawdown equity release, on the other hand, allows you to take out an initial amount and then drawdown further amounts as and when necessary for you. This gives you greater control over the interest, as it is only charged on the money you’ve withdrawn.

For many people, having the option to take out smaller amounts over a period of time is a more cost-effective option. This is because it offers the flexibility to manage the loan in a way that suits their needs.

When deciding on a drawdown or lump sum equity release, your individual circumstances are important. This means that seeking advice from a professional is essential, before making any decisions.

Real Estate Market Influence on Drawdown Equity Release

The real estate market can have an impact on drawdown equity release. Since the amount you can borrow is typically based on the value of your property, you may be able to release more equity from your home if real estate prices increase.

However, it is also worth noting that if property prices fall, you may owe more than your home is worth. This is known as negative equity.

Fortunately, all plans partnered with the Equity Release Council come with a negative equity guarantee. Therefore, even if the value of your home decreases, you will never owe more than the value of your property.

The real estate market also affects the interest rates available. If interest rates in the wider market increase, the rate for future drawdowns could also rise.

However, remember that this will not impact any money already drawn down.

For the above reasons, it is always recommended to keep an eye on the real estate market if you’re considering a drawdown equity release.

Seeking Professional Advice on Drawdown Equity Release

Before taking out a drawdown equity release, it is important to seek professional advice. A financial adviser is able to clearly and comprehensively explain the necessary considerations for taking out a drawdown lifetime mortgage, as well as guiding you through the process.

An adviser can provide a personalised illustration of how a drawdown equity release would work for you, including the impact it may have on the value of your estate and any means-tested benefits which you receive.

They can also help you to compare different schemes, allowing you to source the most suitable drawdown equity release plan and provider for you.

Remember, releasing equity from your home is a big decision. Therefore, it is important to consider all the implications. This includes understanding the costs involved, the impact on your estate and the influence on your entitlement to benefits.

Regulatory Framework for Drawdown Equity Release in the UK

Drawdown lifetime mortgages in the UK are regulated by the Financial Conduct Authority (FCA). This means that providers are required to adhere to specific standards and rules, ensuring that customers are treated fairly.

In addition to the FCA, the Equity Release Council (ERC) also provides a set of standards for its members. These standards provide additional protections for customers, including the negative equity guarantee. This ensures that you will never owe more than your home is worth.

Consequently, before taking out a drawdown equity release, it’s important to check that the provider is regulated by the FCA and, ideally, a partner of the ERC.

This provides you the peace of mind that you are dealing with a reputable and professional provider.

Understanding Mortgage Drawdown

A mortgage drawdown refers to the process of accessing the funds that have been approved by a lender. In the context of a drawdown equity release, this means accessing the money available in your reserve facility after the initial advance.

When you take out a drawdown equity release, you get an initial lump sum and a reserve facility.

The initial withdrawal is the first amount you drawdown, whereas the remaining amount is kept in reserves that you can access in the future.

The minimum amounts which you can draw down after the initial release vary between providers, although there are generally limits to how much you can release.

Some providers may also charge fees for each withdrawal, making it essential to know of this before taking out a plan.

best drawdown equity release

How Does a Lifetime Mortgage Work?

A lifetime mortgage is a type of equity release product which allows you to borrow against the value of your home, whilst still owning and living in it. The loan, along with the accumulated compound interest, is repaid when you die or move into permanent care.

With a drawdown lifetime mortgage, the way in which you release money from your home is slightly different.

Instead of receiving a one-off lump sum, you get an initial advance and a drawdown facility for future withdrawals you want to make. You can choose when and how much to draw down, giving you more control over your finances and interest accumulation.

One key aspect of a lifetime mortgage is the interest. Rather than making monthly repayments to pay off the interest, the interest is added to the loan and repaid alongside the initial amount when the property is sold. This interest rate is fixed for the life of the loan.

Advantages of a Drawdown Lifetime Mortgage

A drawdown lifetime mortgage is often considered the best drawdown equity release product due to its flexibility and cost-effectiveness.

Consequently, the ability to draw down money on your own terms can help manage future costs. The money you release is also tax-free and can be used for whatever purpose you choose.

One of the main benefits of this is the ability to manage the interest. Interest is only charged on the amount you draw down, resulting in lower costs compared to a lump sum plan. In a lump sum plan, interest is instead charged on the total sum from the start.

Another advantage is that you can draw down additional funds from your reserve facility, depending on whether your needs change in the future. This provides you with the ability to adapt your plan to your changing circumstances.

Lastly, a drawdown lifetime mortgage is generally more cost-effective compared to other types of equity release. However, it remains important to consider affordability checks and seek professional advice before making a final decision.

What are the other types of equity release I can consider?

Lifetime mortgages are the most popular type of equity release.

Alternative options include using a Standard Lifetime Mortgage, or Home Reversion plans

We recommend that you read up on these to ensure you are fully aware of your options.

Typically, the amount you are entitled to depend on the value of your home, as the tax free cash you receive is a percentage of your estimated property value. 

FAQ

1. Can you explain what a drawdown equity release is?

A drawdown equity release, or drawdown lifetime mortgage, is a type of equity release plan which allows you to access the money tied up in your home in a flexible manner. You receive an initial amount of this money, whilst also keeping back reserves that you are able to draw from as and when necessary. 

The drawdown lifetime mortgage allows you to take smaller amounts from the reserve facility over time. This means that you only pay interest on the money you’ve drawn down, rather than on the full amount. This can be more cost-effective, as well as helping to manage the interest roll up over the life of the loan.

2. Is a drawdown lifetime mortgage the best equity release product?

Many people consider a drawdown lifetime mortgage to be the best drawdown equity release product, due to its flexibility and cost-effectiveness in relation to interest roll up. With lump sum plans, you receive a fixed sum and pay interest on the whole amount immediately. Alternatively, drawing down allows you to control how much money you release, and when you release it. This means that you only pay interest on the amount you’ve taken out.

However, whether a drawdown lifetime mortgage is suitable for you depends on your individual circumstances, which is why it is always recommended to seek professional advice to understand the implications of this type of mortgage.

3. How does interest work on a drawdown lifetime mortgage?

With a drawdown lifetime mortgage, you do not have to make monthly repayments. Rather, the interest is only added to the loan you have withdrawn. Consequently, if you’ve taken a small initial amount and left the rest in your reserve facility, you only pay interest on that initial amount. 

Then, when you decide to ‘draw down’ more money in the future. You will start paying interest on this additional amount at the prevailing rate at the time of withdrawal.

4. Can I expect any future increase in the money I can draw down?

Yes, a drawdown equity release plan offers the potential for a future increase in the money that you can draw down, as you do not have to take the full release amount upfront. Instead, you can draw smaller amounts over time from your reserve facility, up to certain limits. This enables you to make additional drawdowns from your reserve facility, depending on whether you need more money in the future. The available amount depends on the value of your home and the set value established by the terms of your drawdown plan. 

5. Are there any tax implications with a drawdown equity release?

The money you release with a drawdown equity release is tax-free. This applies to both the initial lump sum and any future amounts which you take out. However, it is important to note that releasing equity could affect any means-tested benefits that you’re currently receiving. This makes it essential to speak with a financial adviser before making any decisions.

While the tax-free cash sum can be used at your own will, it’s important to consider how it might impact your overall financial situation. As always, it is advisable to seek professional advice to fully understand the potential implications in relation to this.

6. What tax implications are associated with drawdown lifetime mortgages?

Although the money released via an equity release drawdown lifetime mortgage is typically tax-free, this changes if any portion of the funds is invested. Depending on your circumstances, any income or capital gains generated may be subject to tax. Consequently, it is highly advisable to seek tax planning advice before making a final decision.

use the equity release calculator to see how much money you could release from your property. Takes less than 60 seconds!

More interesting articles about Equity Release

how does equity release work

In this article, we answer 22 important questions that you may have about equity release, including what it is, how it works and what the best interest rate deals are.

Alternatives to equity release

Equity Release is not for everyone.  In this article we look at the alternative options that you can consider if you need access to money in later life to pay for care, top up your pension etc.  

Lifetime Mortgages

A lifetime mortgage is the most popular type of equity release scheme, as it’s the most flexible and versatile option. The amount you receive depends on your property value. 

Pros & Cons of Equity Release

In recent years equity release has become a very popular option. This article looks at the pros and pitfalls of equity release and what you need to consider before taking it out.

How much can you borrow

How much you can borrow from equity release varies depending on your age and house value.  In this article we look at how much you could borrow from your  home.  

Drawndown Lifetime Mortgages

A drawdown mortgage is a type of equity release scheme, offering greater flexibility and freedom compared with traditional plans. In this article we explain all that you need to know.

Equity Release Calculator

An equity release calculator will give you a good indication of what you can borrow from your home.  This article explains how the calculator works and also shows you what you can receive.

what happens when you die

One of the big concerns that people have about equity release is what happens to their home and borrowings when they die.  In this article we explain everything you need to know.

Home Reversion Plans

A home reversion plan is primarily suited to individuals over 65 looking for a solution to their finances.  This article explains all you need to know.

Financial Promotions Sign-off

Where applicable, the adverts for Boon Brokers on this page have been signed off as a Financial Promotion by Boon Brokers Limited, to ensure that they are in compliance with Section 21 of FSMA. Boon Brokers Limited is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757. The Age Partnership equity release calculator has been approved and provided by Age Partnership. Age Partnership is a trading name of Age Partnership Limited, which is authorised and regulated by the Financial Conduct Authority. FCA registered number 425432.

UK Care Guide - A trusted resource, as seen on

Share this page

 

Get fee-free equity release advice from Boon Brokers.  

Call : 0333 567 1607

|

|

If you take out a product from Boon Brokers, we will receive a fee for introducing you to them.

Unlike most equity release advisors, Boon Brokers do not charge any fees! Have a free consultation to see how they can help.

You can speak to Boon Brokers on the number below and discuss your options

0333 567 1607

Use the equity release calculator and see how much money you could receive.

You can book a call back from for an equity release specialist, who can call you when it's conveniant

All equity release advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757. 

 

If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation.  By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.  

The fee we receive is used to help keep this site operational and to produce new content.  

 

Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

Get FEE-FREE Equity Release Advice