Understanding whether equity release is a good idea requires knowledge and understanding of its workings and potential benefits and drawbacks. As homeowners age, equity release becomes an important consideration as a possible means of accessing the value tied up in a property.
Whether equity release is a good idea depends on one’s individual circumstances, their financial needs and their long term goals.
This is because equity release can provide a significant cash lump sum. This could be particularly useful for covering living expenses, making home improvements or, perhaps, to help their family members get on the property ladder.
However, equity release may not be suitable for everyone, as it reduces the value of your estate and can lessen any inheritance left to your beneficiaries.
Furthermore, it may affect your entitlement to means-tested benefits. To fully understand these implications, it is important to seek professional advice.
Equity release products come with safeguards, such as the negative equity guarantee. This ensures that you’ll never owe more than that of the value of your home.
However, it is vital to recognise that if you decide to repay the loan earlier than outlined in the terms of the product, early repayment charges may apply. With the help of a qualified equity release adviser, you can make a well-informed choice on what plan would be most suitable for your needs.
Equity release refers to a range of products that allow those aged 55 or above to access the money tied up in your home. Depending on the product and provider, you can release the money as a lump sum, or in several smaller amounts, or as a combination of both.
Equity release schemes first emerged in the UK in the mid-1960s. SInce then, the market has grown significantly, as house prices have risen and pension incomes have frequently become inadequate for retirees. In 2022, homeowners released a record £5.6 billion from their homes in total, according to Key Later Life Finance.
Equity release products fall into two main categories, which are lifetime mortgages and home reversion schemes. Whilst choosing a lifetime mortgage means that you’ll have a loan secured against your home, home reversion schemes involve selling a part or all of your home. Although both options result in releasing equity, they function differently.
Equity release can be a useful tool for those seeking to supplement their retirement income, pay off mortgage debt or fund home improvements. However, seeking independent financial advice is essential before deciding if it is something you wish to go ahead with, irrespective of what you intend to use the money for.
The easiest way to understand how equity release works is to look at it in relation to the two types. These are lifetime mortgages and home reversion schemes.
A lifetime mortgage is the most popular form of equity release. It means taking out a loan secured on your home, while retaining full ownership of the home.
Consequently, you will have the option of making monthly repayments or letting the interest roll up. It is important to note that some plans offer a drawdown option, allowing you to release funds as and when needed. The loan and accrued interest is then repaid when you die or move into long-term care.
Home reversion schemes involve selling part or all of your home to a home reversion company. Although you are able to continue living in the house rent-free until you die, you are also responsible for its upkeep.
Both options come with their various pros and cons, and their suitability will depend on individual circumstances.
To navigate the equity release process and the different options available, professional advice from qualified financial advisers can provide support.
Equity release comes with a set of both advantages and disadvantages:
Pros:
Cons:
In the UK, equity release schemes are well regulated through certain legal protections set out by the Financial Conduct Authority (FCA), and providers are required to adhere to strict standards set out by the Equity Release Council.
Although equity release can be particularly valuable for some, it comes with certain risks, as outlined in the previous section.
Therefore, seeking independent legal advice and/or speaking to a qualified equity release adviser before making any decisions is essential. They can help you consider other options, like downsizing to a new property or exploring retirement interest-only mortgages, that may be more suitable to your needs.
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.
Call Boon Brokers on 0333 567 1607 to discuss your equity release requirements.
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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.
Equity release products are designed to cater to unique financial needs and circumstances of individuals.
Whilst the two main types of equity release products are lifetime mortgages and home reversion schemes, there are further subtypes within these categories. These include drawdown lifetime mortgages and interest-only lifetime mortgages.
Choosing a suitable equity release plan requires an understanding of the financial implications of different products, including the interest rates, valuation fees, and the potential for early repayment charges.
Consequently, it is crucial to seek tailored equity release advice from an independent financial adviser. They can provide a comprehensive view of available equity release plans, guiding you through the process of selecting a reliable and suitable equity release provider and plan.
A common reason homeowners will release equity from their property is to pay off an existing mortgage. For those whose existing mortgage has high interest rates or substantial monthly payments, this strategy can be particularly appealing.
Equity release can help homeowners to clear their mortgage debt, thereby reducing their monthly outgoings and improving their financial situation.
However, it is important to remember that equity release itself is a type of loan, with its own interest rolled up over time.
The size of the existing mortgage, the value of the property and the homeowner’s age are key factors in determining if using an equity release loan to pay off an existing mortgage is suitable for you.
Before using equity release, consider if alternative options, like switching to a retirement interest-only mortgage, could be more cost-effective.
As mentioned previously, it is recommended to seek financial advice before making this decision. This is because a financial adviser can help to evaluate the benefits and drawbacks of each available option, plan and product.
Pension credit is a means-tested benefit in the UK, providing additional income for those on a low income in retirement.
As equity release loans provide additional income, releasing equity from your home may affect your entitlement to this benefit. Consequently, this may cause your income to exceed the entitlement threshold and therefore reduce or stop your pension credit. Before making a decision, seek professional advice to understand these implications.
Equity release is considered safe in the UK, regulated by both the Financial Conduct Authority (FCA) and the Equity Release Council. Furthermore, most equity release plans come with a ‘no negative equity guarantee’.
However, as with any financial product, there are risks involved. For example, their potential effect on your tax situation and eligibility for means-tested benefits. As mentioned previously, it can also reduce the amount you can leave as an inheritance.
Consequently, always seek advice from a qualified adviser to help you to understand the terms and conditions of your equity release plan, and the potential risks that come with it.
The amount of money which you can release from your home depends largely on its market value, meaning house prices play a critical role. When you apply for equity release, the provider will arrange a valuation of your home to determine its current market value.
If house prices are high, you may be able to release more equity than initially estimated. Conversely, if house prices fall, this could limit the amount of money which you are able to release.
However, with the ‘no negative equity guarantee’, you will never owe more than your home’s worth. This is regardless of whether house prices decline. To get advice and information regarding the effect of house prices on your personal circumstances, always consult a qualified adviser.
The costs associated with equity release can vary significantly based on the type of plan, and the equity release provider, that you choose.
The main cost to consider is the interest rate on the equity release loan, as this can significantly impact the total amount you owe over time.
Other than the interest, there may be other charges such as arrangement fees, valuation fees, and potentially early repayment charges.
Some plans offer a drawdown facility, where you can release equity as and when you need the funds.
This could reduce the overall cost, as you only pay interest for the money you’ve released. This means that you should consult a financial adviser regarding the different options available, as well as the potential risks associated with them.
Retirement Interest Only (RIO) mortgages are another option for homeowners looking to release funds in retirement. In a RIO mortgage, you borrow a portion of your property’s value and make monthly interest payments.
The loan itself is repaid when your property is sold or when you move into long-term care.
As RIO mortgages often have lower interest rates than equity release products, they can be a more cost-effective way of releasing cash from your home. Despite lower interest rates, you’ll need to prove that you can afford the monthly interest payments.
Remember that your financial adviser can help you to weigh up the pros and cons of RIO mortgages and equity release based on your individual circumstances, consequently helping you to make a decision.
The main factors affecting how much cash you can release are your age, the value of your property, and the specific terms of the equity release product you choose.
Because of life expectancy calculations, older people can typically release more equity.
Moreover, the value of your property also plays a significant role. For instance, if your home is worth a considerable amount, you may be able to release a larger cash sum.
It is also important to note that different equity release products have different terms and conditions. Whilst some products may allow you to release a larger lump sum, others may offer smaller amounts, but with the flexibility of a drawdown facility.
To get an approximate idea of how much cash you could release, you can use an equity release calculator. For a more accurate figure and advice tailored to your circumstances and property wealth, it’s best to consult with a financial adviser.
To help bring the question ‘Is Equity Release A Good Idea’ to a real-world scenario, we have put together a case study:
John is a 70-year-old homeowner. His property has a full market value of £300,000, and he is considering an equity release to supplement his retirement income and carry out some home improvements. He is particularly intrigued by a drawdown lifetime mortgage.
A financial adviser explained to John that he could release a tax-free lump sum from his home, while still retaining ownership. He also discovered that he didn’t need to make monthly repayments. Consequently, this advice allowed John to make a more informed decision.
He preferred the idea of a drawdown lifetime mortgage because it would allow him to release equity as and when needed. This method would allow him to control interest costs, as it would only accrue on the funds he’d withdrawn. Furthermore, he was able to receive information and advice regarding any implications on his tax status and means-tested benefits.
John’s situation illustrates how equity release can be a practical way of raising funds for retirement. It also demonstrates the importance and value in seeking professional advice when considering different equity release options.
To conclude, whether equity release is a good idea or not is largely dependent on your individual circumstances, financial needs, and long term goals. It can be greatly useful for those seeking to supplement their pension, pay off an existing mortgage, or fund home improvements.
Alternatively, it is important to note that it is not without its risks. For instance, implications on your tax status and eligibility for means-tested benefits.
This makes it crucial to get professional advice and to consider all options available before making a decision. Equity release is a long-term commitment and therefore, should be considered as part of your overall financial planning ahead of retirement.
Equity release works by allowing homeowners, aged 55 and over, to access the cash tied up in their property. The two main types of equity release are lifetime mortgages and home reversion schemes.
A lifetime mortgage means that you take out a loan against your home, which is repaid when you die or move into long-term care.
Alternatively, a home reversion scheme involves selling a part or all of your home to a provider in return for a tax-free lump sum or regular payments.
A tax-free lump sum is a single payment received which is not subject to tax. With equity release, particularly a lifetime mortgage, you have the option of receiving the equity released from your home as a tax-free lump sum. Consequently, this can be used for a variety of desired purposes.
When taking out an equity release product, particularly a lifetime mortgage, you borrow money against the value of your home. This loan, like any other, accrues interest over time. Therefore, paying interest means repaying the loan amount plus the accumulated interest.
With most equity release schemes, you are not obligated to make regular interest payments. Instead, the interest is rolled up and repaid along with the loan when the house is sold.
Whether equity release is a good idea depends on individual circumstances. For instance, it can provide a useful way to access cash tied up in your home and offer a tax-free financial boost for those in retirement.
However, it comes with risks and potential implications, such as reducing the value of your estate and affecting inheritance tax and your eligibility for means-tested benefits. This makes it vital to seek professional advice before deciding if equity release is right for you.
Released equity refers to the cash which you can access from the value of your home. It is the difference between the market value of your property and any mortgage or secured loans you have against it. It is important to note that the amount of equity which you can release depends on factors such as your age and the value of your home, as well as the terms of your specific equity release scheme.
The amount of equity that can be released is contingent on several variables, including the value of your home, your age, and the type of equity release plan chosen. The equity release provider or advisor will provide a free equity release calculator for homeowners to estimate the amount of equity they could release from their home.
The equity release costs include legal, survey, and arrangement fees. Before making a decision, homeowners must comprehensively understand all equity release costs.
Additionally, early repayment fees may apply if the equity release plan is repaid before the end of the term.
Home reversion plans involve selling a portion of your property for a lump sum of money or a steady income. As a co-owner, the provider receives a portion of the sale proceeds when the property is sold.
Home reversion plans can provide a larger percentage of the property’s value up front, but the homeowner will not receive the full market value when the property is sold.
Equity release schemes require independent legal counsel to ensure homeowners understand the legal implications of equity release and protect their rights. Before committing to an equity release plan, homeowners should seek independent legal counsel.
Drawdown plans permit homeowners to release cash as needed instead of withdrawing a lump sum at the plan’s inception.
This option is viable for those who want flexibility in applying their equity release funds. Drawdown lifetime mortgages are one type of equity release plan that provides this degree of adaptability.
A decline in home prices can affect the amount of equity available to homeowners, which can impact their ability to finance other endeavours.
However, equity release programmes provide a negative equity guarantee that ensures homeowners will never owe more than their property is worth, even if property values decline.
Generally, the cash received from equity release is tax-free, reducing the overall retirement tax burden. To ensure that they fully comprehend the tax implications of equity release, homeowners should seek independent financial advice.
The value of your home plays a crucial role in determining how much equity can be released through an equity release scheme. The greater the home’s value, the more equity can be released.
Homeowners can use a free equity release calculator to estimate the amount of equity they could release from their homes.
A mortgage broker can assist homeowners in locating the equity release product that best meets their needs. They can offer impartial financial guidance and assist homeowners in comprehending the costs associated with equity release.
Some of the Best Equity Release Interest Rates as of 18 April 2024
The table below shows you some of the best equity release rates for lifetime mortgages from some of the leading equity release providers in the UK.
| Provider Name | Product Name | Interest Rate | Type of product | Offers | ||
|---|---|---|---|---|---|---|
 | Just | Just For You – J1 Green | 5.35% | Fixed | Free Valuation No application fee | |
| Just | Just For You – J2 Green | 5.40% | Fixed | Free Valuation No application fee | |
 | Scottish Widows | FR1 | 5.50% | Fixed | Cashback Free Valuation No application fee | |
| Just | Just For You – J2 | 5.50% | Fixed | Free Valuation No application fee | |
 | Standard Life | Horizon 200 Drawdown | 5.50% | Fixed | Free Valuation | |
| Standard Life | Horizon 200 Drawdown Fee Free | 5.55% | Fixed | Free Valuation No application fee | |
| Scottish Widows | FR2 | 5.57% | Fixed | Cashback Free Valuation No application fee | |
| Standard Life | Horizon 220 Drawdown Fee Free | 5.59% | Fixed | Free Valuation No application fee | |
| Standard Life | Horizon 240 Drawdown | 5.59% | Fixed | Free Valuation | |
 | More 2 Life | Capital Choice Ultra Lite Drawdown 1 | 5.60% | Fixed | Free Valuation No application fee |
The equity release rates have been sourced by UK Care Guide from the Equity Release Supermarket website. These rates may have changed since this table was created and should be taken as indicative only. There may be other providers not listed on this table that could offer better deals. In addition, the providers and products noted may not be right for your particular circumstances. 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. 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 apply to you.
Speak To An Equity Release Specialist Today
Call Boon Brokers on 0333 567 1607 to discuss your equity release requirements and see what deals are available to you.
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.
Get fee-free equity release advice from Boon Brokers.
Call : 0333 567 1607
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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
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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.
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