This article was last updated on 1 August 2022.
Equity release can be confusing and often difficult to wrap your head around. Put simply, equity release relates to the process of taking a tax-free, lump-sum from the equity (cash value) of your home, in a similar way to a mortgage.
This article will give you equity release tips, and tell you all you need to know about the plans.
Equity release products are authorised and regulated by the financial conduct authority and have many benefits for those that need additional income during retirement. Another advantage is that they reduce the pressure on your family and loved ones to support you financially.
When researching whether equity release is a suitable option for your circumstance, you will probably have many questions, for example, about how safe it is, and how it will affect your family. This guide will aim to explain precisely what equity release is, and highlight some of the potential advantages and disadvantages it could have for you.
We consider two main equity release options, lifetime mortgages and home reversion schemes. Lifetime mortgages are generally the most popular type of service, but you should always speak with advisers when comparing the different plans.
In this guide, we will answer some of the following questions to help you make sense of things:
Equity release can allow you to unlock a cash lump sum from the value of your house while you live there. This can be done by taking out a policy/ mortgage from an equity release provider that permits you to access the cash value of your home. You can then use the funds as you wish, giving you peace of mind in old age.
Typically, users choose a lifetime mortgage or a home reversion scheme. This article by the Financial Times provides more information about equity release, but you should always speak with an adviser to see if it is right given your personal conditions.
Equity release plans are an attractive financial option to over 55’s who wish to use the equity tied up in their property to enjoy retirement or provide a sufficient retirement income to cover future care needs. It is different from other forms and types of mortgages/debt because this service doesn’t require you to repay your debt until you die or sell your home.
As a homeowner, you have two options: to either borrow a cash lump sum or receive a regular monthly income, in return for a portion of your home. The borrowed money equates to a value less than your property’s market value, with interest accruing on the borrowed amount. Typically, interest is much higher than with a standard form of mortgage.
The exact amount you receive depends on the rule/terms of your equity release product and contract, your property value, and your circumstances and lifestyle factors such as your age and health. You will never receive the whole value of your home, but an adviser can help you estimate what you might receive with different plans.
The good thing is, you are free to spend the whole amount of money exactly how you wish. Whether that be on home improvements, long term care, or if you simply want a pension pot for security, the choice is yours!
Here is a short video on how equity release works. All products are authorised and regulated by the Financial Conduct Authority, a service offering consumer protection.
The table below shows you the latest rates, as at 1 August 2022, for lifetime mortgages from some of the leading equity release providers in the UK.
|Horizon 300||Standard Life Home Finance||4.17%||– Free Valuation|
|Classic Super Lite||Pure Retirement||4.22%||– Free Valuation – Free Application|
|Horizon 300 (Fee Free)||Standard Life Home Finance||4.22%||– Free Valuation – Free Application|
|Capital Choice Ultra Lite||Standard Life Home Finance||4.27%||– Free Valuation – Free Application|
|Sovereign A||Pure Retirement||4.27%||– Free Valuation – Free Application|
|Capital Choice Super Lite||Standard Life Home Finance||4.28%||– Free Valuation – Free Application|
|Drawdown+ Lite||LV=||4.30%||– Free Valuation – Free Application|
|Sovereign A (Fee Free)||Pure Retirement||4.34%||– Free Valuation – Free Application|
|Classic Drawdown Lite||Pure Retirement||4.35%||– Free Valuation – Free Application|
|Premier Flexible Black||Legal & General||4.37%||– Cashback- Free Valuation- Free Application|
|Lifestyle Select Ultra Lite Flexi||Canada Life||4.37%||– Free Valuation|
|Lifestyle Select Super Lite Flexi||Canada Life||4.44%||– Free Valuation|
|Flexible Black||Legal & General||4.47%||– Cashback- Free Valuation- Free Application|
|Capital Choice Lite||Standard Life Home Finance||4.51%||– Free Valuation – Free Application|
|Flexi Choice Super Lite||Standard Life Home Finance||4.53%||– Free Valuation – Free Application|
|Lifetime Mortgage FR1||Scottish Widows Bank||4.54%||– Cashback- Free Valuation- Free Application|
|Lifestyle Select Lite Flexi||Canada Life||4.54%||– Free Valuation|
|Flexible Pink||Legal & General||4.56%||– Cashback- Free Valuation- Free Application|
|Flexi Choice Lite||Standard Life Home Finance||4.58%||– Free Valuation – Free Application|
|Data sourced from Equity Release Supermarket|
Below is a video on the pros and cons of equity release. Before purchasing any product, it is a good idea to seek equity release advice and independent financial advice, from a certified adviser. The prices of advice services from each business will vary, so consider these things too.
You are essentially dealing with your home, so you should not rush into an equity release scheme without first considering whether it is right for your situation. It is a big change, and you should also talk to your family, as your plan and situation can affect things for them, like their inheritance and their ability to cover the cost of your funeral.
There are a few alternatives if you make the decision that the advantages of equity release do not compensate for the downsides. Other ways of generating wealth for your retirement include downsizing, renting out a room, and asking your family for support.
Before you make any decision, it is crucial to seek advice from an adviser. They can help you properly understand your options, and the benefits and pitfalls of each (including their hidden costs and risks). Advisers can also help explain some of the equity release myths.
As well as speaking with equity release advisers, you should seek independent financial advice. The benefits of independent advice are vast. In particular, experts can give advice based on your personal circumstances and finances. They can explain the impact that each scheme or plan will have on your retirement experience, and give you tips to help you combat the risks and pitfalls.
Lenders allow you to borrow a percentage of the value of your house/estate. Typically, the deal will be in the range of 20-50% of the value of your estate.
The exact deal you receive is determined by considering your situation as a whole. Lenders consider your age, health, and other circumstances when deciding on the details of your plan.
Typically, the older you are, the more you can borrow. However, you must remember to deduct the cost of fees, such as arrangement fees and valuation fees, from the maximum amount you are quoted.
You should also be sure to consider the different interest rates in the equity release market. Typically interest on an equity release loan is higher than for a standard mortgage. Rates generally range from 3 to 5%, so we recommend speaking with advisers to guarantee you choose the best type of loan for your circumstances.
Another thing to think about is whether you wish to receive regular payments or a one-off lump sum. Speak to an adviser, who will consider your personal condition and help you make the right choice.
Use this equity release calculator below to see how much money you could be entitled to. It is free to use, and only takes about 30 seconds to do!
There are plenty of websites that can provide guides and reviews to help you make sense of things. To find out how much you can from borrow from equity release, read the tips and guides from others on Over 50 Choices and Age Partnership. This service gives advice and information from people who have taken out equity release plans themselves. Their tips and experience can help you compare the equity release products available.
As always, we recommend that you seek financial advice from an expert, to ensure you understand the advantages and risks surrounding equity release. They will help you choose the equity release plan that is right for you, and help you understand the alternative policies that are out there.
If you wish to gain more information and advice regarding equity release, you can contact us here at UK Care Guide, and we’ll be more than welcome to help you with any questions you may have. Our article on equity release can provide more information on where to get advice, including information on the best equity interest rates and providers in 2019. Our experts can also help you understand the alternative products available, in line with your personal needs.
Ultimately, if you wish to explore equity release further, you should weigh up the pros and cons, while taking into account expert advice, which safeguards your finances in later life. There are various tools and guides available to help you make sense of things, but ultimately you should talk things through with an adviser before agreeing to anything. An adviser is needed to check the details of your policy and ensure you are sold the form of service that is right for you, long term.
You can contact Key Equity Release, our partners, in one of 3 ways:
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