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How does equity release work and the best equity release rates in 2019

I’m sure you will agree that when it comes to a better understanding of how does equity release work and what the best equity release interest rates are, it can get confusing.   This is why we are here to help you understand the benefit of equity release!

22 most important questions about equity release answered

In this article, we answer 22 important questions that you may have about equity release.

The key topics in this guide will help explain it all to you in a very straightforward way.  In this article, you will find:

  • What is equity release – we break down what it involves
  • How do equity release schemes work – we show in simple steps how it works
  • Best equity release rates in 2019 – Who the best 5 financial services providers are and what their equity release interest rates are
  • Why it is a good option when considering care funding– we look at why it is becoming a popular choice to fund care
  • The pros and cons of equity release – we look at why you may or may not want to do it
  • Can you get equity release if you are under 55 – we explain what your options here ar

1 – What is equity release?

To put it into simple terms, equity release is a way of taking a lump sum, tax-free from the value of your home. It is a type of mortgage.

You can do this in a number of different ways but in essence, you take out a policy/mortgage that allows you to take equity (ie cash) tied up in the value of your property.

You can apply for this if you are over 55 and importantly you do not need to have paid your existing mortgage off to do this.

Generally, when it comes to taking the cash, you can do it as a single large lump sum, split into smaller amounts or a combination of the two. The money you release can then be spent on whatever you like!

Here is a short video that explains what equity release is.

2 – How does equity release work?

When stripped back to basics, equity release plans work by enabling you to release funds (known as ‘equity’) currently tied up in property assets.

This makes it an attractive choice for over 55s who wish to use the capital to enjoy retirement, or set some aside for imminent or future care needs.

It works by lending homeowners a lump sum or regular income (usually on a monthly basis), in return for a portion of their property. Money is lent against a value that amounts to less than the market price of your property, and interest is accrued on the amount you borrow.

When you die the house your estate will have to sell the house and the mortgage repaid.  

Whilst the benefits are clear, they won’t be suitable for everyone. They are however a fantastic option for couples and individuals without savings or additional assets, who would like to use money currently tied up in their property to pay for care.

equity release interest rates 2019

3 – What can I use the money for?

You are free to use the money that you receive.  In our experience the most popular options are:

  • Top up your pension – If your pension doesn’t quite give you enough to live on then this is a great way to top it up
  • A holiday of a lifetime – You may decide to treat yourself and even your family to a holiday of a lifetime
  • Pay for long term care – This tends to be one of the most popular options, as long-term care van be expensive, and the money in your house may be needed to pay for it.  You can read more about this below.
  • Modify your home – If you choose to receive care in the home, such as live in care, then you may need to modify your home to make it more accessible. For example, you may need to make the bathroom easier to get around or add a stairlift.   This means that you can continue to live in your house rather than have to move into a care home. 

How much can you borrow from an equity release plan provider

4 – How much money could I receive?

If you are wondering how much you could get as a lump sum, tax-free, from your home, click the equity release calculator below.  It will be able to give you an estimate of what you could be entitled to

5 – How do I know if I am eligible for an equity release loan?

You need to be a homeowner to apply for an equity release loan.  You do not need to own the home outright so a house with an existing mortgage still makes you eligible.

Most loan products are only available to those that are over the age of 55.   However, you should note that the earlier you take out the load the longer the period of time in which the interest accumulates.   

6 – How much can I borrow with equity release?

Every provider will have their own rules, but typically the maximum that they will lend you is 60% of the value of your property.  However the amount that you receive will depend on your age, and if you are older, then you could receive more than 60%.

Our article on how much can you borrow from equity release will be useful for you to read.

7 – Will I still own my own home?

When you take out a lifetime mortgage the mortgage lender will place a charge on the property title. However, you will remain the legal owner of the property.

8 – Can I move house in the future?

The simple answer is yes you can.  However, you will need to speak to your lender to tell them where you want to move too.  As long as they are happy that your new property is suitable to secure the loan against then there should be no issue with it.  

9 – Can my partner or spouse continue in the house after I die?

They usually can continue living in the house,  However, you need to ensure that when you take out the mortgage it is written in joint names.  If it is not then your partner or spouse may have to sell your home to may off the loan.   

10 – What are the most popular types of equity release mortgage?

There are typically three types of mortgage that you look at.  These are:

  • Lifetime Mortgages – These are by far the most popular
  • Home Reversion Schemes
  • Drawdown Lifetime Mortgage

You can read and watch a short video explaining how each of these works below. 

11 – What is a negative equity guarantee?

For an equity release provider to have their plan approved by the Equity Release Council, it has to have a ‘no negative equity guarantee’.  This basically means that when you use a Lifetime Mortgage you will never owe more than the house is worth.  

12 – What happens if I owe more than my house is worth when I die?

Because you have a negative equity guarantee it doesn’t matter that if when your house is sold the sale price is less than what is owed.   

The financial services provider will not be able to go back to your estate and ask for the difference to be made up.  However, it does also mean that no proceeds from the sale of the house will be paid to your estate and family.  

If you’re worried about the interest that could be payable then you can always decide not to ‘roll up’ the interest and repaid when the home is sold.

Similar to an interest-only mortgage, you can choose to make regular interest payments throughout the life of the loan. 

This, in turn, keeps the outstanding balance as a fixed amount as opposed to one that increases over the years.  Minimising this increase in the loan value might be something that appeals to you and an advisor can explain the benefits of this. 

You can read more about what happens with equity release here. 

13 – Will taking out equity release affect my state benefits?

If you are in receipt of government benefits then it is possible that any means-tested benefits you receive are impacted. You can book a call with an advisor using the calendar below to see how it may impact you.  

14 – What happens if the lender I use goes bust?

Typically what happens is that the loan you were given is sold or passed on to a new lender.  This means that you will still need to continue paying the original loan on the agreed terms. 

They will not be able to change the rules and force you to repay the loan any sooner than was originally agreed.  

15 – What happens if I change my mind?

If you do take put the loan and decide that you want to repay it before either the homeowner dies or moves into long term care, then it is possible that early repayment charges apply.  However, it is possible to get mortgages at the outset that allow early repayment. 

16 – What should I do next?

To help our site users you can have a free consultation with an equity release specialist to help you better understand how it works and what your options might be.

They can also explain:

  • how much you could receive
  • whether it will impact your state benefits; and
  • what the best interest rates are.

To do so you can book an appointment directly using the calendar below.  Just pick your preferred time and date and someone will call you to help.

 

17 – What are the advantages and disadvantages of Equity Release

As is the case with all financial investments, equity release plans have a variety of pros and cons attached to them.

As a whole, there are a number of pros and cons of an equity release plan – but you’ll find a range of products each with their own individual characteristics.

For this reason, it’s incredibly important to research your options thoroughly, and identify where products may differ between providers and even based on your individual position financially and personally.  

As this is often such an important decision it is important that you do your research and make a list of all your equity release pros and cons.

Here is a video that looks at the advantages and disadvantages of equity release schemes.

Advantages of equity release

1. Retain Ownership – You’ll retain ownership of your property for the time being – or at least a portion of it. This enables you to stay in your own home indefinitely – and leaves open a possibility that you could retain some equity from your home at a later stage.

2. Spend YOUR money – You are free to choose how to spend the money released from your property. For example, you can use it to pay for care, re-invest it, gift cash sums to relatives or make necessary improvements at home.

3. Negative Equity Guarantees – Negative equity guarantees are offered by several providers – this protects you from paying more than you borrowed should your property’s value drop significantly.

4. Gift as an inheritance – Some providers also allow you to protect a portion of your property’s value separately to gift as an inheritance. It may also be possible to make partial repayments early should your situation change.

Disadvantages of equity release

1. Reduced inheritance – A natural consequence of taking out an equity release plan is reduced inheritance – as you’ll no longer be able to leave your property as a gift. However, for those considering later life finance or care funding without much time to spare this may be less of a concern.

2. Valuation less than market value – The amount you receive against your property is often offered at a valuation less than its market price, so you could be out of pocket if your circumstances change. You may also decide it is best to sell up, although this would, of course, mean that you will be unable to stay living at home.

3. Impact on tax status – Enrolment can affect your tax status and entitlement to certain welfare payments and benefits. For this reason, it’s worth obtaining advice to get a clearer picture of how the change will affect you financially.

4. Interest payments – Most schemes accrue interest – at fixed or variable rates. Thoroughly research providers and interest rates offer before making a decision.

5. Inflexible – They can be inflexible once they have been taken out – so if your circumstances are likely to change later down the line this may not be the best thing for you. For example, if you use up funds released and run out of money earlier than expected or have to move into a residential care home it may be difficult to work around your current solution.

Always weigh up the equity release pros and cons with your own personal situation and prognosis in mind – especially if you plan on using the funds made available to pay for care.

For complex or particularly unique situations it may be imperative to enlist support from an experienced professional who can guide and advise you based on the information you provide.

In addition to equity release specialists, you can find a list of reputable later life financial planners here in our directory.

18 – Can equity release help with long-term care funding?

As funding for long-term care becomes an increasingly complex issue for individuals and their families, it’s never been more important to weigh up and explore the range of options available.

Sometimes the sheer amount of choices feels overwhelming – and when money is tied up or difficult to access this usually adds to the stress and frustration of the situation.

Equity release is becoming an increasingly popular choice for individuals and couples planning for later life – especially those considering future care needs.

19 – What are the benefits of using equity release to pay for care

FLEXIBILITY – It is an attractive option for couples and individuals considering how to fund care in the future or in the short-term because it is flexible and requires little disruption or upheaval.

REMAIN AT HOME – Equity release plans enable the homeowner or homeowners to remain at home, enjoying the same quality of life, without compromising in the short-term.

INSTANT ACCESS TO MONEY – It provides instant access to money, which you are free to spend however you like.

This is an attractive prospect for individuals needing care who wish to remain at home in the long-term, as it enables them to remain where they are whilst providing ample funds to pay for care at home in addition to necessary modifications or maintenance.

It may also be useful for couples in the event of one person needing residential care – as one spouse or partner can remain at home whilst the other can enjoy the quality and level of care they require.

20 – Can I remortgage to release equity in my home?

If traditional equity release schemes aren’t an option for you or don’t offer you the best deal, you may consider remortgaging to take out equity from your property.  This is an option to look at when looking at paying for care.  

If you are looking to remortgage to release equity in your home then this involves taking out a new, larger mortgage to cover the remaining balance on your property and release a fixed sum for you to use however you wish.

Remortgaging can be complex and risky, and should be conducted under the guidance of a financial professional who can act with your best interests at heart.

21 – Can I get equity release if am are under 55?

We often get asked if it is possible to get equity release plans if you are under 55.  

However, unfortunately, it’s not possible to apply for it if you are under 55.

Traditionally they were only an option for individuals over the age of 65 – however, in recent years, policies have become increasingly flexible.

It’s now possible to apply for equity release with selected providers from the age of 55 upwards.  

22 – What impacts equity release interest rates?

As interest rates rise and fall, equity release rates are naturally influenced, and interest rates in 2019 vary between companies.   

Some companies will offer static or ‘fixed’ rates, whilst others are variable and subject to inflation. What you take out depends on your circumstances and what guarantees you need. 

When making a decision regarding your suitability for equity release plans, it’s key to investigate the amount of interest you’ll be expected to pay. Browse providers and work out how much you will need to repay once the contract is terminated.

Some options enable low monthly repayments to cover interest accrued, so you will only be liable to pay back the loan itself when the contract comes to an end.

The interest rate that you will get will typically depend on the amount of loan to value (LTV) you are taking.

However, typically you would see rates starting around 3.0% going up to about 7%.  As you can see, the range of lifetime mortgage rates that you can get are very wide.  That is why we strongly recommend that you speak to a specialist to help you find the most competitive rate.

Here are the best equity release interest rates available in 2019.  However, the rates can change daily so you should ring the number below for the most up to date information

Best equity release rates 2019 – What are the most competitive rates available

Equity release interest rates in 2019 are generally higher than standard mortgage rates.

Typically, the range of the best equity release interest rates in 2019 are between 3.% and 7%.  All the companies that offer equity release plans will be authorised and regulated by the Financial Conduct Authority, which will give you some confidence even if you have never heard of the provider.  The financial conduct authority is the body that ensures the providers all operate fairly and within the rules that are set down.

As a further confidence factor, all the major providers are also members of the equity release council, which is the industry body for the equity release sector in the UK.

This is a significant range of interest rates and therefore you do need to try and find the best rate for your circumstances. Also, many of the best deals are not available through searching online.

Interest rates can change daily.  We would recommend you call 0800 4640 806 to find out what the latest rates are. They will also have access to deals that aren’t available online.

Since the schemes are offered on a different basis than standard mortgages, they also provide additional guarantees and fallbacks such as measures to prevent paying more in the event of a negative equity situation.

Best Equity Release Interest Rates in 2019

Equity Release ProviderRateKey Feature
Legal General 2.9%Cashback & free valuation
Pure Retirement2.99%10%pa Partial Repayment Option
More 2 Life3%Downsizing Repayment Charge Exemption
Legal & General 3%Cashback & free valuation
Aviva3.4%3-year No Early Repayment Charge

1 – The best equity release deal 

Provider – Legal & General – Authorised and regulated by the Financial Conduct Authority

Maximum Loan to Value – 50%

Annual interest rate (AER) – 2.9% – A lower rate may be available 

Amount you can borrow – £20,000 to £500,000 as a cash payment.  

Offers available with this deal

  • Cashback
  • Free Valuation
  • Free Application
  • Legal Fees Contribution
  • Inheritance Protection Guarantee
  • 3-year No Early Repayment Charge

What to do next if you want to know more

Do it onlineClick here to use the equity release calculator to see how much this deal will cost you.

Speak to someone – Call 0800 953 3792 to speak to an equity release specialist and see if you are entitled to a lower equity release interest rate.


2nd best equity release deal

Provider – Pure Retirement

Maximum Loan to Value – 39.5%

Annual interest rate (AER) – 2.99%

Amount you can borrow – £250,000 to £2,000,000 as a cash lump sum payment.  

Offers available with this deal

  • Free Valuation
  • Free Application
  • 10%pa Partial Repayment Option
  • Fixed Early Repayment Charges
  • Downsizing Repayment Charge Exemption

What to do next if you want to know more

Do it onlineClick here to use the equity release calculator to see how much this deal will cost you.

Speak to someone – Call 0800 953 3792 to speak to an equity release specialist and see if you are entitled to a lower equity release interest rate.

3rd best equity release deal

Provider – More 2 Life

Maximum Loan to Value – 39.5%

Annual rate (AER) – 3%

Amount you can borrow – £250,000 to £2,000,000 as a cash payment.  

Offers available with this deal

  • Free Valuation
  • Free Application
  • 10%pa Partial Repayments Option
  • Fixed Early Repayment Charges
  • Downsizing Repayment Charge Exemption

What to do next if you want to know more about this deal

Do it onlineClick here to use the equity release calculator to see how much this deal will cost you.

Speak to someone – Call 0800 953 3792 to speak to an equity release specialist and see if you are entitled to a lower equity release interest rate.


4th best equity release deal

Provider – Legal & General

Maximum Loan to Value – 50%

Annual interest rate (AER) – 3% – A lower rate may be available 

Amount you can borrow – £20,000 to £500,000 as a cash payment.  

Offers available with this deal

  • Cashback
  • Free Valuation
  • Free Application
  • Legal Fees Contribution
  • Inheritance Protection Guarantee
  • 3-year No Early Repayment Charge

What to do next if you want to know more about this deal

Do it onlineClick here to use the equity release calculator to see how much this deal will cost you.

Speak to someone – Call 0800 953 3792 to speak to an equity release specialist and see if you are entitled to a lower equity release interest rate.


5th best equity release interest deal

Provider – Aviva

Maximum Loan to Value – 42%

Annual rate (AER) – 3.40% – A lower rate may be available.

Capital you can borrow – £10,000 to £750,000 as a cash payment.  

Offers available with this deal

  • Cashback
  • Free Valuation
  • Reduced Application Fee is available
  • Inheritance Guarantee
  • 10%pa Voluntary Partial Repayments
  • 3-year No Early Repayment Charge**
  • Bespoke Interest Rates available

What to do next if you want to know more about this deal

Speak to someone – Call 0800 953 3792 to speak to an equity release specialist and see if you are entitled to a lower equity release interest rate.

What to do next if you want to know what deal you are entitled to

You can book an appointment directly and have a free consultation with an equity release specialist using the calendar below.  Just pick your preferred time and date and someone will call you to help.

 

Speak to someone – Call 0800 4640 806 to speak to an equity release specialist and see if you are entitled to a lower equity release interest rate.


Equity release calculator – see how much money you could get in 1 minute

If you are wondering how much you could get as a lump sum, tax-free, from your home, click the equity release calculator below.  It will be able to give you an estimate of what you will get.

 

how does equity release work uk

Different types of Equity Release schemes

There are three main types of equity release schemes in the UK”

  • Lifetime Mortgage
  • Home Reversion Plan
  • Drawdown Lifetime Mortgage

We have produced some short videos below which explain how each of these schemes work.

What is a Lifetime Mortgage?

You can read more about Lifetime Mortgages here.

What is a Home Reversion Plan?

 

You can read more about Home Reversion Schemes here.

What is a Drawdown Lifetime Mortgage?

You can read more about Drawdown Lifetime Mortgages here.

See how much you could borrow within 1 minute

equity release pros and cons

TAKE ACTION HERE  – At UK Care Guide, we have compiled an independent list of equity release specialists.   They will all be able to discuss and guide you on whether its the right option and also help you find an equity release provider.   You can access a list of them here.

The benefits of taking financial advice

As well as the video above where Martin Lewis talks about why you should speak to an advisor before taking out an equity release scheme, we recommend you watch this really useful video from the government’s Money Advice Service where individual’s talk about the benefits of taking independent financial advice.

Book an appointment to speak to an equity release specialist

To help our site users you can have a free consultation with an equity release specialist to help you better understand how it works and what your options might be.

To do so you can book an appointment directly using the calendar below.  Just pick your preferred time and date and someone will call you to help.

 


 

Are you sat on a pile of cash?

 

 

Click the equity release calculator below to see how much £££ you could get right now.  You will definitely be surprised.

Amazing Equity Release deals!

There are some amazing equity release deals to be had at the moment and they are changing almost daily!

 

 

Please call 0800 953 3792 and speak to an advisor now.

Book a call with an equity release specialist

Click the calender below to book an appointment for a time that suits you.