What Are the Top 14 Facts About Equity Release That You Must Know in 2024?

Do You Want to Discover 14 Key Facts About Equity Release in 2024? Find Out How Equity Release Is Regulated and What It Means for Your Right to Stay In Your Home. Read On…
  • Last Updated: 30 Jan 2024
  • Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui

Key Takeaways:

  • Equity release in the UK allows homeowners aged 55 and over to unlock wealth tied up in their property, providing a tax-free cash lump sum or regular income.
  • The main risks and benefits of equity release include potential reduction of your estate's value, changes to your tax status, and the ability to access a tax-free lump sum while continuing to live in your home.
  • Equity release can impact your estate and inheritance by potentially reducing its value, though a no negative equity guarantee ensures you don’t pass on any debts to your heirs.
  • The two primary types of equity release schemes in the UK are lifetime mortgages, which allow you to take out a loan secured on your home while retaining ownership, and home reversion plans, where you sell part or all of your home in return for a tax-free lump sum or regular income.
  • Equity release can potentially affect your pension and benefits by increasing your income or savings, which may disqualify you from means-tested benefits, but it's crucial to seek expert guidance to understand all implications.

Knowing these equity release facts can help you avoid being a victim of a scam!

Every year, an increasing number of homeowners1 over the age of 55 use equity release to access the wealth in their property. 

Entering into an equity release agreement without proper expertise, on the other hand, may devastate your finances. 

In This Article, You Will Discover:

    We have delved into the topic, reviewed countless plans, and summarised equity release example you need to know about equity release before you make your final decision. 

    Therefore:

    What Is Equity Release?

    Equity release schemes enable homeowners over the age of 55 to access the locked-in value of their property.

    It's an alternative route to gain funds, particularly useful if other retirement resources are inadequate.

    These schemes offer either a lump sum or regular payments, with the loan amount and accumulated interest usually paid back from your estate later on.

    Understanding its implications on future estate value and inheritance is key.

    Learn More: What Is Equity Release In The UK

    What Are the Most Important Equity Release Facts to Know?

    Equity release is a financial solution where homeowners aged 55 and above can unlock the wealth tied up in their property without having to move.

    There are two main types: lifetime mortgages and home reversion plans.

    A lifetime mortgage is a loan secured against your property, while a home reversion plan involves selling all or part of your home in return for a lump sum or regular income.

    One crucial fact is that equity release can impact your entitlement to state benefits and your tax position.

    It's vital to get expert financial advice before proceeding.

    Also, note that all equity release products should be regulated by the Financial Conduct Authority (FCA) to ensure they're safe and suitable for consumers.

    Finally, remember that it's possible to make no negative equity guarantees, ensuring you'll never owe more than your property's value.

    14 Facts About Equity Release You Must Know

    If your are considering releasing equity from your property, you must know these fourteen facts concerning equity release.

    You Can Make Multiple Withdrawals With Equity Release

    With equity release, you could gain access to a cash facility to make multiple withdrawals, rather than one large lump sum if you prefer.

    This is known as a drawdown lifetime mortgage. 

    You Can Pay Back the Interest on Your Loan

    Instead of allowing the interest on your debt to accumulate, you may pay it back in monthly instalments.

    While there is no obligation to do so, you can volunteer to repay the monthly interest, stopping and starting whenever you wish.

    You Have the Right to Stay In Your Home

    According to the Equity Release Council guidelines, you have the right to remain in your house for the duration of your equity release plan.

    You Do not Have to Own Your Home Outright to Be Eligible for Equity Release.

    You do not have to own your house outright to be eligible for equity release.

    If you have a small portion of your mortgage remaining, your are still eligible for equity release. Although, you will be required to pay it off with the cash you unlock. 

    Equity Release in 2024 Is Regulated by a Governing Body

    Equity release is supervised by a governing body called the Equity Release Council, which has stringent guidelines to safeguard consumers.

    You should always select a lender that is a member of the Council.

    With a Lifetime Mortgage, You Retain 100% Homeownership

    You retain 100% ownership of your home with a lifetime mortgage, but you sell all or a portion with a home reversion scheme.

    With both options, you can continue living there. 

    A lifetime mortgage means you get to enjoy everything your home offers, such as security, stability, comfort, and the satisfaction of owning a precious asset that is appreciating in value over time.

    You will Never Be in More Debt Than the Value of Your Property

    The no-negative equity guarantee2 ensures that you will never owe more than the value of your home.

    The Equity Release Council has established this to ensure that your heirs are not left with equity release debt when you die or move into permanent care.

    This guarantee ensures that any excess amounts payable from your equity release will be wiped off if they exceed the market value of your home, even if the property market plummets.

    You Unlock Tax‑Free Cash

    The cash you unlock with equity release is tax-free, meaning you will not have to pay any income tax or capital gains tax on it. 

    You can also use equity release to avoid inheritance tax3.

    There is a Minimum Age

    The minimum age to release the equity from your home is typically 55 years old. Although, some lenders do differ.

    However, there is no upper age limit for some products. Some may have a cap of between 80 and 95.

    There is a Minimum Property Value in 2024

    To release equity, your property must be valued at least £70,000 - although, in rare situations, you may still access up to 65% of the value of your estate.

    Lenders May Take Your Health and Lifestyle Into Account

    With an enhanced lifetime mortgage, lenders may consider your health and lifestyle to offer you maximum equity and minimal interest rates. 

    The Interest Rate Can Be Fixed for Life

    The majority of equity release interest rates* are fixed for the remainder of your life. 

    However, some plans have variable interest rates that are capped.

    *While we regularly review interest rates, these may have changed since our last update.

    The Debt Will not Be Passed On

    Your equity release debt will not be passed on to your heirs. 

    Instead, when you die or require long-term care, the loan and any compound interest will be paid off through the sale of your property.

    A Solicitor of Your Choosing Will Aid with the Legal Aspects of Equity Release

    You will be guided through the legal parts of the equity release process by a solicitor of your choosing. 

    Once you have chosen the equity release provider and plan that is right for you, an estate attorney will assist you with the transfer and legal paperwork.

    The post-COVID laws dictate that you must have at least one face-to-face meeting with your solicitor4.

    Common Questions

    How Does Equity Release Affect Inheritance Tax in the UK?

    Can Equity Release Reduce the Inheritance Tax Burden?

    What is the Relationship Between Equity Release and Inheritance Tax?

    Is Inheritance Tax Payable on Equity Release in the UK?

    How to Minimize Inheritance Tax Through Equity Release?

    How Long Does The Equity Release Process Take?

    What Are The Pitfalls Of Equity Release?

    Can I Be Refused Equity Release?

    Conclusion

    If you are still questioning if equity release is a sensible decision in 2024 after considering these equity release facts, The short answer is yes.

    If done correctly, equity release may be a good financial strategy to provide UK citizens over 55 with the funds they need for retirement.

    However, as noted in these equity release facts, you are obligated to obtain confirmation from a financial advisor before unlocking the wealth in your property.

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