how to get an equity release loan

Equity Release Loan | April 2024


Equity release loans allow homeowners, typically those aged 55 and over, to access some of the value tied up in their home as a tax-free lump sum or regular income. This release is a way to provide funds for retirement, home improvements, or other needs. Equity release could include taking out a lifetime mortgage secured against your home or selling a share in your property.

The following is an article on equity release explained, including:

–  A detailed understanding of the background of equity release loans.

– A thorough explanation of what an equity release loan is and how it works.

– A discussion of the advantages and disadvantages of equity release loans.

– Information to help to make an informed decision on whether to take out an equity release loan.

Table of Contents

Background of Equity Release Loan

Equity release schemes first emerged in the UK in the 1960s. However, their popularity grew from the 1990s onwards, meaning that more over-55 homeowners attempted to tap into their property wealth.

The loan is secured against your home, and the amount you can borrow depends on the value of your property.

The Equity Release Council oversees equity release products in the UK. This body ensures that products meet certain standards to protect consumers. For instance, all equity release loans must come with a ‘no negative equity guarantee’. Consequently, you will never owe more than the value of your home.

There are different types of equity release loans, including lifetime mortgages and home reversion plans. Whilst a lifetime mortgage is a loan secured against your home, a home reversion plan involves selling a share of your home to a provider in return for a lump sum or regular payments.

It is important to note the growing popularity of equity release loans in recent years. According to Equity Release Council data, over 43,000 new equity release plans were taken out in 2021 as rising numbers of over-55s turn to property wealth

Equity Release Loan

An equity release loan is a way for homeowners to release equity from their home without having to move out of their property. The loan is secured against the home, allowing the homeowner to continue living there. In addition, you may be able to take the released money as either a lump sum or smaller instalments. 

When the homeowner dies or moves into long term care, you will make repayments to the loan. Typically, the property is sold and the proceeds are used to pay off the loan. Any remaining funds are distributed as per the homeowner’s will.

An independent legal adviser usually oversees the process, ensuring that it is done fairly and transparently. The homeowner also receives advice from a specialist equity release adviser, helping them to understand the product and its implications. Remember that advisers are available Monday to Friday, potentially offering invaluable guidance. 

In the UK, most equity release loans come with a no negative equity guarantee protection. This means that the amount you owe can never exceed the value of your home, therefore creating one of the main equity release benefits. 

You can also watch this video on Youtube here.

Advantages and Disadvantages of Equity Release Loans

Equity release loans have several advantages, which include:

Access To Cash Without Moving

  • Equity release allows homeowners to access some of the value of their home, whilst also continuing to live there.
  • This can provide funds for retirement, home improvements, medical bills, and more.

No Repayment Needed

  • With some equity release plans, no repayments are due until the home is sold or the borrower dies or moves into long-term care.
  • Consequently, this allows borrowers to maintain cash flow.

Interest Accrues

  • Although interest rolls up, you don’t have to make payments on it.
  • This avoids being over-burdened with debt repayments.

Remain the Owner

  • Borrowers keep full ownership rights and can still leave the property to heirs as an inheritance. However, this is minus the loan balance.
  • You retain full ownership of your property and can still leave it to your heirs as an inheritance, subject to repaying the outstanding loan balance. The inherited property is not automatically sold when you pass away, unless your beneficiaries choose to do so.

Fixed Interest Rates

  • Equity release loans often come with a fixed rate, avoiding variable rate fluctuations.

Tax-Free Cash

  • Money drawn from equity release is not subject to income tax, offering tax-efficient funds.

Flexible Drawdown

  • Many plans allow you to take cash in phases or as a lump sum when necessary, providing flexibility.

No Negative Equity

  • Even if the house value drops, the borrower owes no more than the loan amount drawn.

Alternatively, equity release loans also have some disadvantages. In order to make an informed decision, it is necessary to be aware of the following:

Less Inheritance

  • Any equity released reduces the value of the property inheritance for beneficiaries.

Expensive Setup Costs

  • Set up fees, valuation charges, and legal costs can be high upfront.

Reduced Asset Value

  • The remaining equity value of the home is reduced with each cash lump sum taken.

Risk of Negative Equity

  • If the house value falls below the loan amount owed, negative equity occurs.

Variable Rates Possible

  • Although often fixed, some products offer variable rates. This is at risk to rate rises.

Future Needs Restricted

  • Less equity remaining restricts options for funding future needs.
  •  If taken before State Pension age, equity release may reduce the amount of Pension Credit which you are entitled to.

Repossession Possible

  • Failure to meet terms may lead the lender to repossess the property.

Eligibility Requirements

  • Age, health, and property value limits may restrict access to equity release.

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

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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.

getting an equity release loan

Making a Decision on Equity Release Loan

Before making a final decision, it is necessary to recognise the positives and negatives of an equity release loan.

Consequently, you should consider the ways in which the loan will affect your finances, your lifestyle, and your family.

Consequently, it’s always recommended that you speak to a specialist equity release adviser. They can explain how the loan works, what the costs are, and how it might affect your tax position and entitlement to benefits.

In addition, it is also a good idea to discuss your plans with your family.

This is because they could be affected by your decision, particularly if they were expecting to inherit your home.

Understanding Equity Release Products

Equity release products come in two main options, which are lifetime mortgages and home reversion plans. A lifetime mortgage is an equity release mortgage which allows you to borrow a proportion of your home’s value.

Consequently, interest is charged on the amount borrowed, which can be repaid or added to the loan.

Alternatively, a home reversion plan involves selling a part or all of your home.

It is important to note that both products allow you to stay in your home, offering you the right to live there until you pass away or move into long-term care. 

Remember that it is essential to consider the equity release cost, potentially including setup fees, interest rates, and potentially early repayment charges. 

The Role of Equity Release Providers

Equity release providers are firms which offer equity release products. They are regulated by the Financial Conduct Authority (FCA), meaning that they must follow the rules set out by the Equity Release Council. This includes providing a ‘no negative equity’ guarantee, which means that you will never owe more than your home is worth.

Selecting a provider who is a member of the Equity Release Council can reassure you of their reputation and adherence to strict guidelines.

In order to make sure that you understand the terms and conditions, the provider will typically require you to obtain independent legal advice prior to taking out equity release.

"An independent legal adviser can guide you through the legal aspects of equity release, helping you to understand the contract"

The Importance of Legal and Financial Advice

When considering equity release, it is crucial that you seek advice from an independent financial adviser.

They can provide you with a thorough knowledge, including how much equity you can release, the costs involved, how it impacts your existing mortgage and how it will affect your finances. 

As mentioned previously, legal advice is equally as important.

An independent legal adviser can guide you through the legal aspects of equity release, helping you to understand the contract. Moreover, they can advise you on the potential impact of equity release on your estate and inheritance.

Equity Release and Lifestyle Choices

Although equity release offers a potential way to enhance your retirement lifestyle, it is important to remember that equity release is a long-term commitment.

Consequently, if you choose to make monthly repayments, you need to ensure you can afford them. Similarly, if you choose a product with early repayment charges, you should understand the conditions under which these would apply.

As equity release schemes allow you to stay in your home while accessing the money tied up in it, this is particularly appealing to those who need to pay for care.

However, they may not be the right choice for everyone. Consequently, always consider your options carefully and seek advice before making a decision.

Financial Implications of Equity Release 

Equity release can be a significant financial lifeline for many, offering tax-free cash tied up in the value of your home. Although this money can be used in any way you see fit, it’s crucial to understand the financial implications of such a decision. 

You should note that the interest rates for equity release products, particularly lifetime mortgage interest rates, can be higher than those of standard mortgages.

It is important to understand how these interest rates work, as well as how they impact the total amount which you owe.

Interest is typically rolled up, meaning it compounds over time. This can dramatically increase the amount you need to pay back, consequently reducing the value of your estate.

In addition, equity release may also affect your entitlement to means-tested benefits. This is because the tax free cash which you receive could increase your income or capital. Before deciding to proceed with equity release, consulting with a financial adviser can help you to understand these implications.

equity release loans in the uk

Some of the best equity release interest rates as at April 2024

The table below shows you some of the best equity release rates, as at April 2024, for lifetime mortgages, from some of the leading equity release providers in the UK. 

These rates may have changed since this table was updated and should be taken as indicative only. There may also be other providers not listed on this table that could offer better deals.  In addition, the providers and products noted below may not be right for your particular circumstances. Therefore, we strongly recommend that you speak to an equity release adviser, who will be able to provide you with information on the latest rates, that are applicable to you.


Product NameInterest RateType of productOffers
Horizon 200 Drawdown5.26%FixedFree Valuation
Horizon 200 Drawdown Fee Free5.31%FixedFree ValuationNo application fee
Capital Choice Ultra Lite Drawdown 15.46%FixedFree ValuationNo application fee
Drawdown Lifestyle DD15.58%FixedFree ValuationNo application fee
FR15.60%FixedCashbackFree ValuationNo application fee
Horizon 280 Drawdown5.60%FixedFree Valuation
Interest Roll-Up 15.61%FixedFree Valuation
Optional Payment 15.61%FixedFree Valuation
Drawdown Lifestyle DD25.63%FixedFree ValuationNo application fee
Interest Roll-Up 1 (no fee)5.65%FixedFree ValuationNo application fee

The equity release rates have been sourced from Equity Release Supermarket. These indicative rates and incentives may have changed since this article was last updated. Therefore, they should only be taken as a guide and we cannot guarantee their current accuracy. Please also note that we do not provide advice on or endorse any particular product listed here. The rate you are offered will depend on your individual circumstances and subject to lender approval. We recommend that you speak to an equity release advisor to see what the best options are for you.

If you take out a product with Age Partnership, we will receive a fee for introducing you to them. By contacting Age Partnership through us, the cost of any equity release product would be the same as if you had contacted them directly.  The fee we received is used to help keep our site operational and to produce new content.  

Understanding Equity Release Safety 

Many homeowners question whether equity release is safe. Therefore, it is important to note that the safety of equity release schemes largely depends on the provider you choose and the regulations in place.

In the UK, equity release providers are regulated by the Financial Conduct Authority which offers a level of protection to consumers. 

This is because all providers must offer a ‘no negative equity guarantee’, ensuring that you will never owe more than your home is worth.

This means that even if the housing market falls, the debt owed through your equity release scheme will never exceed the market value of your property.

Although equity release can be safe, it’s also important to seek independent advice to make sure it’s the right choice for your circumstances.

This will allow a financial adviser to explain the intricacies of how equity release works, consequently helping you make an informed decision.

Using an Equity Release Calculator

An equity release calculator will provide an estimate of how much money you might be able to release from your home.

This is because it takes into account factors such as your age, property value, and the type of equity release scheme you’re interested in.

Whilst an equity release calculator will provide you with a rough cash lump sum estimate you could receive, the exact amount you can release can depend on various factors. For instance, the specific terms of the equity release provider.

Case Study

Let’s bring the concept of equity release loan to life with a case study. This scenario is about John, a retiree who needed extra income. Therefore, those considering equity release should find this  example relevant.

John, a 68-year-old homeowner, was looking for ways to supplement his pension income. The value of his suburban semi-detached home was £220,000. After seeking equity release advice, he chose to take out a lifetime mortgage equity release product.

John opted for a drawdown lifetime mortgage, meaning that he could take an initial lump sum of £60,000. This was tax-free cash which could be used for home improvements and regular expenses. In addition, he had the option to take further lump sums up to the maximum agreed loan amount whenever needed.

The lifetime mortgage had a fixed annual interest rate of 5%. Whilst interest accrued on the amount borrowed, John did not have to make any monthly repayments.

The accrued interest rolled up and would be repaid alongside the original loan when the house was eventually sold.

John’s adviser explained how the equity release would reduce the value of his estate. However, John was comfortable knowing he could still live in his home while receiving cash to support his lifestyle.

Key Takeaways and Learnings

This article has provided a comprehensive overview of equity release loans, aiming to highlight the key aspects of this financial product for you. Here are the key takeaways to consider:

– For homeowners over 55, equity release products, such as lifetime mortgages, enable you to withdraw tax-free money from the value of their home. With the help of these product, your retirement income may increase significantly.

– Through equity release, you can access the money tied up in your home without having to relocate. In the event that you pass away or enter long-term care, the loan is returned, typically through the sale of your property.

– Taking out a lifetime mortgage or other equity release product can have implications for your tax situation and your entitlement to means-tested benefits. Therefore, it is important to seek professional advice to understand these implications.

– You must understand how an equity release loan’s interest is accrued. Typically, interest is tacked on to the loan, gradually raising your total debt.

– Whilst paying interest is not required during your lifetime, the accumulated interest is repaid when the loan is paid back.

– Although releasing money from your home can provide financial freedom, it’s important to consider how it might affect your estate and your beneficiaries.

 Frequently Asked Questions

 1. How does equity release work?

Equity release works by allowing homeowners, typically over 55, to access the value tied up in their home. The release money is tax-free cash, which can then be used for any purpose. The two main types of equity release products are lifetime mortgages and home reversion plans. In a lifetime mortgage, a loan is secured against your home. The loan and any accrued interest are paid back when the home is sold, typically when you die or move into long-term care.

 2. Can I use the money released from equity release for anything I want?

Yes, the money you release from your home is yours to use as you wish. For instance, to pay for home improvements, support family members, or enhance their lifestyle in retirement. There are no restrictions on how you can use the money, providing you with equity release tax free cash.

 3. Do I have to pay interest on an equity release loan?

Interest is charged on the amount which you release from your home. However, you don’t have to make monthly payments to pay off this interest. Instead, the interest is added to the loan and is paid back when the loan is repaid. As previously mentioned, this is usually when you pass away or move into long-term care. The interest is compounded over time, which means that the amount you owe can grow quickly.

 4. Can equity release affect my entitlement to means-tested benefits?

Yes, releasing equity from your home could affect your entitlement to means-tested benefits. This is because the money you release, although tax-free, can increase your income or capital. Consequently, this could affect your eligibility for certain benefits. If you need to know whether it will affect your eligibility, you could consult an advisor. 

 5. Can I still take out equity release if I might need to move into care in the future?

If you think you will need to move into care in the future, you can still take out a lifetime mortgage. Conversely, you will need to repay the loan when you sell your home to move into care.

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

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