Available Types of Equity Release Schemes in 2024

Are You Looking to Release Equity, but You Are Unsure Which Type to Consider. Learn About Lifetime Mortgages, Home Reversion Schemes, or Which Options Could Be Right for You. It Is All Here.
  • 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

  • The different types of equity release include lifetime mortgages and home reversion plans, each offering unique benefits for homeowners over the age of 55.
  • A lifetime mortgage works by taking out a loan secured on your home whereas a home reversion plan involves selling all or part of your home in exchange for a tax-free lump sum or regular payments.
  • The right type of equity release for you depends on personal factors such as your age, the value of your home, and your financial needs and circumstances.
  • The advantages of equity release may include tax-free capital and the ability to stay in your home, while disadvantages can encompass higher interest rates, reduced inheritance, and potential impacts on benefits.
  • Risks and costs associated with different types of equity release can include compounding interest, early repayment charges, reduced inheritance for your family, and potential impacts on means-tested 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:

    What Are 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 Different Types of Equity Release 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.

    Is There More Than One Type of Equity Release?

    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. 

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

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

    Further information:

    What Is an Equity Release 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.

    What Is a Home Reversion Plan?

    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. 

    Drawdown vs. 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:

    What Is a Drawdown Equity Release?

    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 Is a Lump Sum Equity Release?

    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 Is an Enhanced Equity Release?

    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.

    What Is an Equity Release for Buy-to-Let?

    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.

    Past Plans: Releasing Equity From Home

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

    Here is why:

    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.

    Income Equity Release

    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.

    Flexible Equity Release

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

    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.

    What Is a Reverse Mortgage?

    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.

    Common Questions

    What Are the Different Types of Equity Release?

    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)?

    Are Retirement-Interest Only Mortgages (RIO) A Type of Equity Release?

    In Conclusion

    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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