What Types of Equity Release Schemes Are Available in 2024?

The main types of equity release plans are lifetime mortgages and home reversion plans, each with variations like drawdown, enhanced, and interest-payment options, catering to different needs and preferences.
  • Last Updated: 17 May 2024
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Contributors:

Francis Hui
What Are the Different Types of Equity Release Available in the UK? Learn About Lifetime Mortgages, Home Reversion Schemes, or Which Options Could Be Right for You. It Is All Here.
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Key Takeaways
  • The UK offers primarily two types of equity release schemes for those 55 and older: borrow against your property with a lifetime mortgage or sell a portion of it for cash or income through home reversion—the right equity release option hinges on your age, home’s worth, and financial goals.
  • Benefits often include receiving tax-free cash in hand without moving out, but drawbacks often involve higher interest rates and a decrease in inheritance.
  • Heads up on the fine print: risks and costs show interest accumulation, early payback fees, and a knock-on effect on inheritance and benefits.

If you were not one of the 93,421 older homeowners who unlocked their property value through equity release in 20221, you best read on to discover these types of equity release.

With various plans on the market, you will need expert advice.

Luckily we have compiled the perfect introduction to help you start this journey.

In This Article, You Will Discover:

    Our expert team at Every Investor keeps it’s finger on the pulse to ensure it brings you all the latest market updates.

    What you need to know about the types of equity release in 2024:

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    Types of Equity Release Plans

    What Are the Different Types of Equity Release Schemes Available in the UK?

    The UK offers primarily two types of equity release schemes: lifetime mortgages and home reversion plans.

    What Are the Different Types of Equity Release Schemes?

    House equity release schemes offer a financial solution for individuals over 55, enabling them to extract value from their homes without having to sell.

    It can provide a substantial one-time sum, a series of payments, or a blend of both, with the home used as collateral.

    The UK’s equity release market is primarily composed of lifetime mortgages and home reversion plans.

    These options can effectively increase retirement income, fund property modifications, or help with healthcare costs, offering a versatile financial strategy for seniors.

    What Are the Various Equity Release Types Available in the UK?

    Equity release in the UK comes in two main forms: lifetime mortgages and home reversion plans.

    Lifetime mortgages, the most common type, allow homeowners to borrow a portion of their property’s value while retaining ownership.

    Home reversion plans, on the other hand, involve selling a share of your property to a reversion company for a lump sum or regular income, while continuing to live there rent-free.
    Some unique variants of these plans are available too.

    Drawdown lifetime mortgages let you withdraw money as and when needed, while interest-only lifetime mortgages require monthly interest payments to mitigate the eventual debt.

    Enhanced lifetime mortgages take your health into consideration, potentially offering more money if you have certain conditions.

    The choice depends on your individual financial circumstances, retirement plans, and the level of flexibility or security you seek.

    When deciding between equity release and remortgaging, homeowners may use an equity release vs remortgage calculator to assess the financial implications of each option.

    What Types of Equity Release Plans Exist?

    Yes, there is more than one type of equity release, but a lifetime mortgage is the most popular.

    Note:

    There is a variety of lifetime mortgage products to consider. 

    Which Equity Release Schemes Are Available in the UK?

    The types of equity release schemes are a lifetime mortgage and a home reversion plan. 

    Further information:

    What Is the Difference Between Equity Release and a Lifetime Mortgage?

    An equity release lifetime mortgage is the most commonly used type of equity release product in 2024.

    A lifetime mortgage scheme helps homeowners aged 55 and above access their property wealth while retaining full ownership. 

    While you can repay the monthly interest and a portion of the loan each year, you are under no obligation to do so.

    Instead, you can leave the interest to accrue, and it will be repaid, along with the cash unlocked, when you pass away or move to long-term care, usually through the sale of your property.

    How Does a Home Reversion Plan Differ From Other Equity Release Types?

    A home reversion plan is the predecessor to the lifetime mortgage and the vastly less popular equity release type.

    A home reversion lender will assess your property as collateral and purchase it (or a portion of it) below market value.

    You will receive tax-free cash and life-long tenancy on the property in exchange.

    When you pass away or move to long-term care, the lender will sell your property and take their share, including any appreciation. 

    What’s the Difference Between Drawdown and Lump Sum Equity Release?

    A drawdown and lump sum equity release are the two options for receiving your equity release income.

    While each option has benefits, the best choice depends on why you need the funds.

    More details:

    How Does Equity Release Flexible Drawdown Work?

    A drawdown equity release is designed to give you a cash facility you can access whenever you wish. 

    You can opt for an initial tax-free lump sum, followed by smaller increments whenever needed.

    Great news:

    The money in your drawdown facility will remain interest-free until it is withdrawn.

    What Constitutes a Lump Sum Equity Release Scheme?

    A lump sum equity release is designed for homeowners who require a large sum of cash for a large, one-off purchase. 

    The tax-free sum can be used for any legal purpose and can be spent at any rate.

    However:

    The sum will accumulate compound interest and may impact your means-tested benefit eligibility.

    What Should You Know About the Eligibility and Costs for Equity Release?

    Eligibility for equity release usually depends on age and property value, while costs include interest rates and fees.

    What Are the Eligibility Criteria for Different Types of Equity Release Plans?

    The eligibility criteria for equity release plans typically include age, property value, and property location.

    Most schemes require the applicant to be at least 55 years old, although some plans may set the minimum age at 60 or 65.

    The property, usually the applicant’s main residence, must meet certain valuation thresholds, with most lenders requiring a minimum property value around £70,000.

    The property’s location within the UK also influences eligibility, as lenders have geographical restrictions.

    Additionally, the amount of outstanding mortgage or secured loans on the property can affect eligibility, with most plans requiring these to be paid off or settled as part of the equity release process.

    What Interest Rates and Costs Can You Expect With Equity Release Schemes?

    Equity release schemes, particularly lifetime mortgages, often have higher interest rates compared to conventional mortgages, reflecting their increased risk to the lender.

    The interest rates can be fixed or variable, with fixed rates providing certainty over future repayments.

    Costs associated with equity release include arrangement fees, legal fees, and valuation fees, which can add up to several thousand pounds.

    Importantly, the compound interest nature of these schemes means that the debt can grow quickly over time, a critical aspect for potential borrowers to consider.

    How Does Equity Release Work, and What Are the Key Variations?

    Equity release provides homeowners access to their property’s value, with variations like lump-sum, drawdown, and enhanced plans.

    How Does Enhanced Equity Release Differ From Standard Plans?

    An enhanced equity release plan is especially for homeowners who suffer from a medical or lifestyle condition that could shorten their lifespan. 

    After completing a medical questionnaire, homeowners who qualify will have the option of releasing more equity at a lower interest rate, compared to traditional plans.

    How Does Equity Release Work for Buy-to-Let Properties?

    An equity release for buy-to-let, allows you to unlock funds from your buy-to-let property to invest in others, opt for a lump sum or a drawdown facility.

    Your adviser will place a charge on your investment property so that you can use the capital built into it.

    What Is the Process for Obtaining an Equity Release, and How Has It Evolved Over Time?

    Obtaining equity release involves advice, application, and completion stages, and the process has become more streamlined over the years.

    What Is the Process for Obtaining an Equity Release, and What Steps Should You Follow?

    Obtaining an equity release involves several steps, starting with seeking advice from a qualified adviser, who can help determine the most suitable plan. The next step is property valuation, which determines how much can be released.

    Upon choosing a plan, the application process involves legal and financial advice to ensure the borrower understands the terms and commitments.

    After approval, the funds are released, typically within 8 to 12 weeks from the application. It’s crucial for applicants to consider the long-term impact, including how it affects inheritance and entitlement to means-tested benefits.

    How Have Types of Equity Release Schemes Evolved Over Time?

    Since equity release is an ever-evolving industry, some past plans are no longer relevant in 2024.

    Here is why:

    What Is an Interest-Only Equity Release Mortgage?

    Interest-only mortgages are no longer relevant because the Equity Release Council announced in 20222 that all equity release loans must come with the option of voluntary repayments.

    Therefore, you can still repay only the interest if you wish, with the loan settlement initiated when you die or move to long-term care.

    How Does Income Equity Release Work?

    An income equity release plan is not currently offered by any of the UK’s authorised and regulated equity release lenders.

    However, this plan may make a comeback in the future.

    What Are the Benefits of Flexible Equity Release?

    Flexible equity release is no longer necessary since all plans are now flexible because of the Equity Release Council’s3 ruling.

    What Is Voluntary Repayment Equity Release?

    A voluntary repayment equity release was once a specific plan.

    But now, all lenders provide voluntary repayment options on new plans.

    How Is a Reverse Mortgage Different From Equity Release?

    A reverse mortgage is a loan against your home in exchange for a cash release, typically in monthly payments.

    Reverse mortgages are essentially income lifetime mortgages, which are not currently available in the UK.

    What Are Your Options When Considering or Repaying Equity Release?

    Options include choosing between different equity release plans or repayment strategies, such as voluntary repayments or plan redemption.

    What Are the Alternatives to Equity Release, and How Do They Compare?

    Alternatives to equity release include downsizing, where the homeowner sells their current property and moves to a less expensive one, releasing equity without incurring debt.

    Another option is taking out a conventional loan or mortgage, which may be more suitable if the homeowner can afford regular repayments.

    Renting out a portion of the property or applying for local authority grants for essential repairs are other viable alternatives.

    Each option has its advantages and considerations, such as the impact on lifestyle, financial flexibility, and the inheritance you wish to leave.

    How Can You Repay Your Equity Release Plan, and What Are the Options Available?

    Repayment options for equity release plans vary, with lifetime mortgages typically not requiring regular repayments as the loan and interest are repaid from the sale of the property when the borrower dies or moves into long-term care.

    Some plans allow for voluntary repayments to control the debt’s growth.

    For home reversion plans, since the provider owns a portion or all of the property, repayment is not applicable until the property is sold.

    Borrowers should consider their long-term financial strategy and potential impacts on their estate when choosing a repayment method.

    Common Questions About Types of Equity Release

    What Are the Different Types of Equity Release Plans?

    How Does Each Type of Equity Release Work?

    Which Type of Equity Release Is Right for Me?

    Can You Explain the Advantages and Disadvantages of Each Equity Release Type?

    What Are Risks and Costs Associated With Different Types of Equity Release?

    How Does a Lifetime Mortgage Work?

    What Are the Differences Between Equity Release Plans?

    What Is the Difference Between a Lifetime Mortgage and a Home Reversion Plan?

    Will I Still Be Able to Stay In My Home?

    How Much Will I Get for My Property?

    Which Is the Best Type of Equity Release Plan?

    How Do I Decide Which Type of Equity Release Is Right for Me?

    What Is a Shared Appreciation Mortgage (SAM)?

    Is a Retirement-Interest Only Mortgage (RIO) Considered Equity Release?

    Concluding Thoughts on Equity Release Types

    With various equity release products available for your needs, you are bound to find the best option for you.

    Be sure to contact a financial adviser, broker, or equity release mortgage lender to discuss these types of equity release and discover if you should consider an alternative source of funds instead.

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