Equity release presents an opportunity for homeowners approaching retirement, enabling them to access a tax free cash lump sum from the equity built up in their house.
This article explores the less commonly discussed aspects of equity release, including its potential impacts on state benefits, inheritance, and debt accumulation through compound interest.
It also highlights the advantages, such as remaining in your home and providing a no negative equity guarantee.
The article will help you do the following:
Here are 7 key takeaways from this article:
Equity release can have an impact on your eligibility to claim for means-tested state benefits. If the cash you release from your house increases your savings above a certain threshold, it might reduce the amount of government benefits you can claim.
By taking out an equity release plan, the amount you can leave your family, as an inheritance, will likely decrease. This is because the loan, along with any accrued interest, must be repaid upon the sale of your home, typically when you pass away, or move into long-term care, such as a residential care home.
The interest on equity release mortgages is compounded. This means that it is added to the loan amount and interest is then charged on the total. Over time, this can lead to the debt growing quickly, potentially eating into the remaining equity in your home.
One of the most appealing aspects of equity release is that you can continue to live in your own home. The agreement typically lasts until you pass away or move into long-term care/. This meant that you have a place to live for the rest of your life.
Most equity release plans come with a no negative equity guarantee. This means that you will never owe more than the value of your home, even if the debt surpasses this due to falling property prices or the accumulation of interest.
If you decide to repay your equity release loan early, you may face significant early repayment charges. These charges can make it expensive to pay off the loan early.
Equity release products come with either fixed or variable interest rates.
Fixed rates offer the security of knowing what your interest payments will be. However, variable rates can fluctuate, potentially increasing the cost of the loan over time.
Given the complexity and long-term implications of equity release, seeking advice from a qualified financial adviser, or an equity release adviser is crucial. They can help you understand the benefits and risks, which in turn should help you make the right choice.
There are many reasons why people consider equity release a good option for them. Some of the main reasons people release equity from their homes are as follows:
Some people will take out equity release to pay off their outstanding mortgage or any other debts that they may have. Equity release can provide a very quick fix to your debts, in certain circumstances.
Sometimes equity release providers will make it a condition of the plan that you pay off any existing debts with the funds released.
It is also much easier to be approved for an equity release loan than it is for a regular mortgage or other kind of loan. You do not need to undertake an affordability assessment as the loan is secured against your property. However, your provider will check whether there are any other loans secured against the home before approving the deal.
Sometimes people want to use the money simply to renovate their homes. This can be for purely aesthetic reasons or it can have a more practical focus. For example, you might want to adapt your home for more comfortable living in your old age.
Moving the key rooms downstairs, installing a stairlift, or replacing a bath with a shower, can all be good investments for your future.
Sometimes people simply want to top up their retirement income. A good way of doing this is using a drawdown lifetime mortgage . This allows you to access the tax-free cash only when you need it. You receive the money in instalments rather than as a lump sum and only pay interest on what you take. This creates the effect of having a regular income, which is appealing to some.
Often, homeowners like to use their released cash to help a family member. They may need the money at a specific point in time, for example to get a deposit on a house of their own.
This can potentially be a tax efficient way of helping as, if you pass the cash on to your beneficiaries at least seven years before your death, they will not have to pay tax on it.
Similarly, you will be reducing the value of your estate, and depending on your property’s worth, you might reduce it below the threshold for inheritance tax. Therefore, this is a common reason for people taking out equity release on their home.
An equity release calculator is a tool designed to help you estimate the amount of money they can release from the value of their property.
It requires you to input things such as the age of the homeowner, the property value, and any outstanding mortgage or loans secured against the property. The calculator then provides an initial estimate, offering insight into how much equity could be unlocked from a home.
Try the calculator below to see what you can release.
Try Age Partnership’s equity release calculator and estimate how much money you could release from your property.
If you take out a product from Age Partnership, we will receive a fee for introducing you to them. This helps support the site and for us to produce more content.
Many people wonder ‘is equity release safe?’ There are many potential pitfalls with equity release but it is possible to make it work for you. In order to avoid risk when taking out equity release, it is a good idea to take the following precautions.
It is always a good idea to get equity release advice from a professional mortgage broker. They will take into consideration your age, health, finances and any family that you may want to leave money to.
Financial advisers will ask you what you want to achieve with the money and they will offer you alternative ways of raising the money, if there are any.
Once you have decided that home equity release is the right option for you, the adviser will make an estimate of how much cash you will be able to release and they will make a suggestion of an equity release product to go with.
If the adviser thinks that equity release is right for you, they will estimate how much cash you can release and suggest suitable equity release products. They should also give an indication of how much compound interest should mount up. This will depend on interest rates and whether you choose to make any repayments.
Equity release plans can have a big impact on how much money you have left to give to your family when you are gone. This is why it is important that you discuss your equity release plans with your family before committing to anything.
You may be able to work out a plan with them to repay some of the interest together, to reduce how much is taken out of the final property value.
Finally, you should make sure that you only work with lenders and advisers who are approved by the Financial Conduct Authority and members of the Equity Release Council. This will offer you a number of guarantees, set a limit on interest rates, and make equity release safe to undertake.
There are two main types of equity release options in the UK. They are Lifetime Mortgages and Home Reversion Plans. Each has its unique features, benefits, and considerations, and we have set out some highlights below.
A Lifetime Mortgage is the most popular form of equity release.
This option allows you to take out a loan secured against your home while retaining ownership. You do not have to make monthly repayments as the loan and accumulated interest are repaid when the property is sold. This usually occurs when the last surviving borrower dies or moves into long-term care.
Interest is compounded over time, which can significantly increase the amount you owe. This is a key consideration when you take out a lifetime mortgage product.
Let’s take the example of a homeowner is 70 years old and owns a property valued at £250,000. They decide to take out a lifetime mortgage to release equity from their home.
Let’s assume their equity release provider offers 40% of the property’s value as the maximum loan amount for their age.
In this case, the homeowner borrows £100,000. This amount, plus any accrued interest, will be repaid when the property is sold, typically when the homeowner passes away or moves into long-term care.
If the interest rate is 5% compounded annually, and the loan lasts for 10 years, the total amount owed would be:
A Home Reversion plan involves selling a part or all of your home to a home reversion provider in exchange for a tax free cash lump sum or regular payments.
Unlike Lifetime Mortgages, Home Reversion Plans mean that you may no longer own your home or a share of it. This might be something that causes you concern in later life.
However, you are guaranteed the right to stay in your property rent-free for life or until you move into long term care, such as in to a care home.
The percentage of the property sold reflects the amount received and does not change, but as you are selling part of your home below market value, it can be less cost-effective than a Lifetime Mortgage. However, this is something your advisor will be able to help you understand.
Each equity release option has its pros and cons, and the right choice depends on individual circumstances, such as your age, health, and financial goals. It’s crucial to seek independent advice from a qualified equity release adviser to understand which option best suits your needs.
For a Home Reversion Plan, assume the same 70 year old homeowner decides instead to sell a portion of their property for immediate cash, retaining the right to live in the home rent-free.
They agree to sell 50% of their property to a home reversion company.
In this scenario, the homeowner receives £125,000.
This is usually less than the market value of the share of the home sold, reflecting the company’s need to make a profit and the homeowner’s right to continue living in the property.
When the property is eventually sold, the proceeds are split according to the ownership percentages established at the time of the agreement.
If the property value increases to £300,000 by the time it is sold, the company would receive:
The homeowner (or their estate) would also receive £150,000, reflecting their retained 50% ownership.
The main problem with home reversion plans is that you will sell your property for a good deal under the actual property value. Sometimes this can mean that you receive as little as 30 percent of the value of your home. Additionally, if you sell the whole thing, you won’t benefit from an increase in property values in the future.
Often, since you do not retain ownership in this kind of plan, the house will have to be vacated very quickly after your death and this can cause unnecessary extra stress on your surviving family members.
Home Reversion plans are particularly restrictive and you may find that it is very difficult to move home if you decide that you want to at some point down the line.
You should always make sure that you seek financial advice from an equity release adviser so that you are not surprised by any hidden costs later on.
Some of the Best Equity Release Interest Rates as of 28 March 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 |
 | Standard Life | Horizon 200 Drawdown | 5.37% | Fixed | Free Valuation |
| Standard Life | Horizon 220 Drawdown | 5.38% | Fixed | Free Valuation |
| Just | Just For You – J2 Green | 5.40% | Fixed | Free Valuation No application fee |
| Standard Life | Horizon 240 Drawdown | 5.40% | Fixed | Free Valuation |
| Standard Life | Horizon 200 Drawdown Fee Free | 5.41% | Fixed | Free Valuation No application fee |
| Just | Just For You – J1 | 5.45% | Fixed | Free Valuation No application fee |
| Standard Life | Horizon 240 Drawdown Fee Free | 5.45% | Fixed | Free Valuation No application fee |
| Standard Life | Horizon 260 Drawdown | 5.45% | Fixed | Free Valuation |
 | Scottish Widows | FR1 | 5.50% | Fixed | Cashback 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.
Equity release can seem like an attractive option for accessing the money tied up in your house. However, it’s crucial to understand the financial implications before you decide to move ahead with it.
One of the most significant financial implications of a Lifetime Mortgage, the most common type of equity release, is the accumulation of compound interest.
Unlike a standard mortgage, where monthly repayments reduce the loan amount and the interest charged on it, equity release schemes, such as those through a Lifetime Mortgage, typically do not require monthly repayments.
The impact of this is that interest compounds over time, meaning the interest is charged on the loan amount plus any previously accumulated interest. This can quickly add up.
Another financial implication is the potential for early repayment charges (ERCs).
If you decide to repay your equity release loan early, perhaps due to downsizing or accessing alternative funds, you may be subject to an early repayment charge. These charges can quickly add upl and vary between equity release providers. Therefore, it’s important to understand the terms and conditions of your equity release plan before proceeding.
Equity release can also affect your eligibility for means-tested benefits.
Releasing equity from your home may increase your income or assets above the threshold for certain benefits, such as Pension Credit or Council Tax Support. It’s crucial to assess how equity release might change your financial situation and potentially reduce the benefits you’re entitled to receive.
Before deciding on equity release, it’s advisable to seek independent financial advice to understand these financial implications fully. An equity release adviser can help you navigate the complexities of equity release, ensuring you make an informed decision that aligns with your financial goals and circumstances.
Understanding the equity release process is important for homeowners considering this as a financing option. The process involves several key steps, from initial consideration to the final agreement. We have noted the key steps that you need to follow below.
The first step in the equity release process is to have an initial consultation with an independent financial adviser specialising in equity release.
This meeting is an opportunity to discuss your specific financial needs, circumstances, and goals. The adviser will be able to explain between the different types of equity release schemes available and help you understand the potential benefits and risks of each.
If you decide to go ahead, the next step is getting a property valuation. An independent valuer will assess your home to determine its current market value. The amount of equity you can release will then largely depend on the value of your property and your age.
Obtaining legal advice is a crucial step in the equity release process.
An equity release solicitor will help you understand the legal implications of the equity release agreement. They will ensure you are fully informed about your rights and the long-term impact of the equity release on your property and estate.
Once you have decided to proceed with an equity release scheme, you will need to complete an application.
The equity release provider will review your application and conduct their assessment of your property. If they are happy with it, they will make you an offer, which will set out the terms of the equity release plan, including how much you can borrow and the interest rate you will be offered.
The final step in the process is completion. Once you accept the offer, your solicitor will finalise the legal paperwork, and the equity release provider will release the funds to you.
You can then use the funds as you wish, whether for home improvements, to supplement your retirement income, or for any other purpose, such as going on holiday or helping family members out financially.
It’s important to take your time at each stage of the process and ensure you fully understand the implications of equity release. Independent advice from both a financial adviser and a solicitor can help you make an informed decision that’s right for your circumstances.
So, is equity release a good idea ? As we have seen, there are a number of catches when it comes to taking out equity release, but it can still work for you if you are careful and plan wisely.
If equity release is not right for you, there are other alternatives for you to consider.
You could look at other shorter-term loans, such as personal loans, or credit card loans. You could also consider remortgaging your house to reduce your monthly expenditures.
Often, downsizing can be a good way to free up some cash for retirement. You can make the most of cheaper house prices and avoid many of the risks which you come across with equity release.
Finally, you could consider checking whether you qualify for any government grants.
There is a catch with equity release to consider when it comes to joint equity release. The loan is due for repayment when the last borrower named on the plan passes away or moves into permanent care.
If you live with your partner, you must make sure that both of you are named as joint borrowers on the equity release plan as this will ensure that the surviving borrower can continue to live in the home even after the death of the first.
If you neglect to name both parties on the plan, however, you could end up with a situation in which your spouse is forced to sell up and move out of the family home, in order to repay the debt.
The article provides a comprehensive overview of equity release, covering its benefits and potential drawbacks.
Considering how equity release might affect your financial situation, particularly regarding state benefits and inheritance, is essential.
Here are our recommendations:
Consult with a financial adviser to understand the full implications of equity release for your unique situation.
Talk to your family about your plans, as equity release will affect the inheritance you can leave.
Assess whether the need for immediate funds outweighs the potential long-term costs and impacts on your estate.
Be clear about the terms of your equity release plan, including interest rates and repayment charges.
Before proceeding with equity release, consider other financial options that might suit your needs. This is important.
Equity release offers a flexible solution for accessing the wealth tied up in your home but requires careful consideration and planning.
By taking informed steps, you can ensure that equity release works effectively for your retirement strategy.
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.
Saq is a financial expert and is responsible for the day-to-day running of the UK Care Guide website. Before taking on the operation of this site, Saq was a Director and the UK Head of DC Pensions, Benefits and Wellbeing at PwC. Saq is also a part of the steering group at the Living Wage Foundation, which has developed the UK’s National Living Pension standard.
Saq has regularly featured in the press, with examples including:
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.
Equity release works in one of two ways. Either you take out something known as a Home Reversion scheme, in which you sell a portion of your house to an equity release provider for less than its market value. Or, you take out a lifetime mortgage , which involves borrowing a large loan secured against your property. This is the more common form of equity release.
If you have taken out a product with a lender regulated by the Financial Conduct Authority, you will never be forced to make any repayments while you are alive and you will never be forced to leave your home. You will have a right to remain in the property until you die or move into long term care.
Your beneficiaries will be responsible for paying your debt out of the sale of your estate; however, they will never owe any more than this. The Financial Conduct Authority ensures that you will have a ‘no negative equity guarantee’, meaning that your children will never owe more than your property is worth.
It is possible to sell your house and move while you have an equity release scheme in place. However, you should be prepared to pay significant early repayment penalties. Look for an equity release provider who offers downsizing protection to get a bit more flexibility in the future.
Similarly, you can choose to end your lifetime mortgage early, but it will mean early repayment fees. This is why it is important to talk to an independent financial adviser and think through all the implications of your decision before you take out a plan.
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
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.
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