What's Equity Release: The ULTIMATE Guide in 2024

Equity release allows homeowners aged 55 and over to access the equity tied up in their property without having to sell or move out. The two main types are lifetime mortgages and home reversion plans. The amount released, plus accrued interest, is repaid when the homeowner dies or moves into permanent care, typically from the sale of the property.
  • Last Updated: 07 May 2024
  • Fact Checked Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui
Could Your Property Support You During Retirement? Learn About Equity Release and Its Benefits and Risks Here.
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Key Takeaways
  • Tap into your home’s value for cash flow in retirement with equity release, perfect for homeowners over 55.
  • Boost your retirement funds without packing boxes—stay put and let your home’s equity work for you.
  • Watch out for the twists—equity release means compound interest and a possible nip at your inheritance.
  • Planning to leave a legacy through inheritance? Equity release can still make it happen, though the final estate value might decline.
  • Jump on the equity release bandwagon if you’re 55+, own a decent home, and it meets the value cut.

In 2023, around 50,000 British homeowners over 55 opted for equity release.1

While it is a popular choice for accessing home value, it comes with risks such as reducing your estate’s value, and may not suit everyone.

Before committing, research carefully, seek expert advice, and consider the pros and cons of this type of loan.

In This Article, You Will Discover:

    Our goal is to provide a comprehensive equity release guide so you can find it easier to make informed decisions.

    At Every Investor, we are committed to maintaining the highest standards of accuracy and comprehensiveness. 

    Our researchers have analysed all the latest equity release news, equity release statisticsequity release facts and equity release industry updates. Our editorial team reviews, fact-checks, and updates all our content to remain current, and relevant.

    Keep reading to find out what you need to know.

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    Understanding Equity Release Operations

    What Is Equity Release and How Does It Function in the UK?

    Equity release provides UK homeowners over 55 access to their property’s value without needing to sell it.

    What Is Equity Release?

    Equity release is a financial solution for older homeowners allowing you to borrow against your property’s value, ensuring you remain in your home until you pass away or need long-term care, providing all the terms and conditions of the contract are met.

    Many seniors explore equity release schemes as a way to unlock the value tied up in their homes during retirement.

    How Does Equity Release Work?

    Equity release works by converting the equity in your home into cash, which you can receive as a lump sum, regular payments, or both. This cash is then repaid, with interest, from the sale of your home when you die or move into permanent care, without requiring monthly repayments during your lifetime.

    With a lifetime mortgage, you can choose monthly or sporadic payments, but the loan must be repaid upon your passing or when you move into permanent care.

    If you’re planning a home renovation but need funds, you may explore the option to release equity, tapping into the accumulated value in your property for the desired upgrades.

    Learn More: How Does Equity Release Work?

    How Does the Equity Release Process Work?

    The equity release process involves an initial equity release appointment with a professional, applying for a loan, waiting for approval, and deciding whether to accept the offer.

    The steps:

    • Seek advice: Consult an FCA-authorised and regulated equity release broker or advisor to assess your financial needs and explore options. They will recommend a suitable product from an Equity Release Council member.
    • Application: Your advisor will submit your application to the chosen provider.
    • Property valuation: A qualified surveyor will conduct a thorough property valuation.
    • Offer acceptance: If approved, you will receive an offer through your solicitor. Upon acceptance, you will sign an equity release agreement, and your solicitor will register the loan with the Land Registry.5

    What Are Lifetime Equity Release Mortgages?

    Lifetime mortgages allow you to borrow against your home’s value whilst maintaining ownership.

    You can access the equity as a lump sum or in smaller amounts with a reserve facility for future use.

    Understanding Home Reversion Plans

    Home reversion plans involve selling part or all of your home to a provider at a value below the market rate, meaning you could lose a significant portion of your property’s value. This also means you will no longer have sole ownership of your property.

    Who Can Benefit from Equity Release and What Are the Eligibility Criteria?

    Homeowners over 55, seeking financial flexibility in retirement, can benefit from equity release, subject to property value and personal circumstances.

    What Are the Criteria for Equity Release Eligibility?

    Equity release criteria can be stringent as these products cater to a specific borrower profile.

    These criteria typically include:

    • A minimum age of 55,
    • Being mortgage-free or having a small remaining mortgage balance,
    • Using the property as your primary residence,
    • A minimum property value of £70,000,
    • A maximum of two names on the title deed, and
    • Clearing any existing debts on the property with some of the funds.

    Additional criteria may depend on the plan and lender.

    NOTE: If you have an existing mortgage, please read “equity release with an existing mortgage“.

    How Does Equity Release Work for People Aged 50 and Above?

    Equity release for those aged 50 and above often involves lower loan amounts due to the increased risk to lenders.

    You may find that interest rates are higher, and the equity you can release is typically lower compared to older age groups. However, starting early can offer more flexibility in managing your financial planning for retirement.

    Various Uses of Equity Release for Over 55s

    Equity release uses encompass a wide range of possibilities, as long as they comply with legal requirements.

    Some common purposes include:

    • Paying off mortgages.
    • Boosting retirement income.
    • Supporting family members.
    • Meeting care-related expenses.

    To make informed decisions about using your property value, seek guidance from an experienced broker or advisor.

    What Are the Financial Implications of Choosing Equity Release?

    Choosing equity release impacts your estate’s value and may affect your entitlement to means-tested benefits, requiring careful consideration.

    Analysing the Costs Involved in Equity Release Schemes

    Equity release costs typically range between £1,500 and £3,000, but this will depend on your lender and plan.2

    These can include:

    There is also the potential for early repayment charges if you cancel your plan before you pass away or move to long-term care.

    Finally, your loan will accrue compound interest—which is calculated on initial loan amount plus the accumulated interest—which can be repaid monthly to reduce the overall cost.

    You will need to obtain an equity release quote to find out the specific costs related to you, and your options.

    Interest Rates for Equity Release Plans

    Equity release interest rates differ based on the provider, loan type, and borrowing amount, and it is important to understand that these rates can significantly affect the overall cost of the product.

    Typical rates ranging between 5.25% to 6.30%, reflecting market dynamics and individual circumstances.

    Lifetime mortgages must offer fixed or capped variable interest rates under Equity Release Council (ERC) guidelines.4

    How Does Equity Release Affect Your Pension Funds and Retirement Planning?

    Equity release can complement your pension by providing additional funds, but it’s important to consider the long-term impact.

    It could potentially reduce your entitlement to means-tested benefits and might affect your tax position. You should carefully integrate equity release into your overall retirement strategy for optimal financial balance.

    Is Opting for Equity Release a Wise Financial Decision?

    Whether equity release is a good idea or not depends on your individual circumstances and requirements, but it is vital to consider potential downsides like compound interest and the possible effect on your estate.

    The popularity of these plans is increasing owing to the ageing population and people’s need to supplement pension income for a comfortable retirement.

    It is not for everyone

    It is crucial to seek independent financial and legal advice and carefully evaluate all available options before making a decision.

    How Do Different Equity Release Plans Compare Across the UK?

    Various plans offer flexibility or security, with differences in interest rates and repayment methods tailored to diverse homeowner needs across the UK.

    Exploring the Various Types of Equity Release Loans in the UK

    The types of equity release loans available in the UK are lifetime mortgages and home reversion schemes.

    The two types share these three characteristics:

    • You can continue living in your home.
    • The money unlocked is tax-free.
    • There are no compulsory repayments.

    However, there are key differences between the two umbrella terms.

    Equity Release Options Across Different UK Locations

    These are the equity release locations available throughout the UK, but providers may not offer their products in all locations.

    It is offered in many areas in the following locations:

    Some equity release providers have their lending policies and restrictions regarding certain areas or property types.

    Additionally, variations in housing markets and property values across different areas can impact the amount of equity you can release from your property.

    Is Equity Release Different in Northern Ireland Compared to the Rest of the UK?

    In this part of Ireland, the principles of equity release are similar to the rest of the UK, but there are some regional variations.

    You should be aware of different property criteria and lender availability. Also, legal processes might slightly differ, which is why consulting with a local equity release adviser can be crucial for you.

    What Makes for a Safe and Effective Equity Release Plan?

    Safe equity release plans are those regulated by the FCA, offering a no-negative equity guarantee and clear terms on repayments and interest.

    How Safe Are Equity Release Plans for Seniors?

    Is equity release safe as a financial product today?

    Yes, it is regulated by the FCA and represented by the ERC, which covers 90% of the market,6 but as with any financial product, it carries potential risks, including accrued interest and impacts on inheritance.

    The ERC’s safeguards, including the No Negative Equity Guarantee, penalty-free partial repayments, inheritance protection, and Significant Life Event Exemption, continue to adapt to the evolving market.

    To ensure your safety, choose a regulated product and work with a professional financial advisor or broker.

    Professional Advice on Equity Release in the UK

    Equity release advice is essential and mandated by the Financial Conduct Authority.7

    An advisor or broker will guide you through the process, while a solicitor will handle legal aspects. Seeking independent financial and legal advice ensures informed decision-making.

    Keep in mind

    In-house advice from a specific lender may be an option but limits advice to their plans only, excluding the broader regulated market.

    Examples of How Equity Release Schemes Have Been Successfully Implemented?

    One common example is homeowners using equity release to supplement their pension income, enhancing their lifestyle in retirement.

    Another scenario is using the funds for home improvements, thus increasing the property’s value. Some have also successfully used equity release for paying off existing mortgages or debts, easing financial burdens.

    Top Equity Release Companies in the UK for 2024

    The best equity release companies in the UK market offer a variety of regulated products and services. An advisor or broker can help determine the best company for your needs.

    Some top companies include:

    Ensure your provider is approved by the ERC and authorised and regulated in the UK by the FCA.

    Discovering the Best Equity Release Schemes in 2024

    The best equity release schemes in the UK, as chosen by us based on factors such as interest rates, fees, product features, and customer satisfaction, are available from various providers.

    The best scheme for you will depend on your specific circumstances and may not be included in this list. However, reviewing these options can provide you with an idea of what to anticipate.

    How to Calculate and Compare Equity Release Deals?

    Using online calculators and consulting with advisers helps homeowners compare deals to find the most favourable equity release terms.

    Using an Equity Release Compound Interest Calculator

    An equity release calculator is a tool that estimates the potential amount you can release from your property by considering factors like your age, property value, and outstanding mortgage debt.

    To use our equity release calculator, you will need to provide some basic information.

    An example of how a calculator works:

    For example, if you are 68 years old, your property is worth £300,000, and you have an outstanding mortgage of £20,000, the calculator may indicate that you could release up to £100,000 in equity.

    However, it is important to remember that these figures are estimates, and professional advice should be sought before making any decisions.

    *These figures are for indicative purposes only.

    Comparing the Best Equity Release Deals in 2024

    If you want to compare equity release deals, it is crucial to select the one that suits your needs.

    The market now offers more flexible products that enable penalty-free partial repayments, making them suitable for gradual loan repayment.8

    What Are the Fastest Ways to Secure Equity Release?

    To secure equity release quickly, ensure your paperwork is in order and your financial information is up to date. You can expedite the process by seeking advice from a specialist equity release adviser who understands your needs. They can help you navigate the market efficiently and find a suitable plan faster.

    Understanding the Broader Context and Alternatives to Equity Release

    It’s vital to explore all financial options, such as downsizing or borrowing, to ensure equity release is the best choice for your situation.

    The Evolving History of Equity Release in the UK

    Equity release history in the UK dates back to the 1960s, but has been marred by a legacy of distrust owing to past practices.

    Home income plans, which involved using equity for annuities, were sold in the 1980s without proper advice and regulation, resulting in homeowners losing their homes or receiving minimal income.9

    However:

    With the implementation of regulatory measures overseen by the FCA and ERC, working with regulated lenders has helped address these issues.10

    What Are the Alternatives to Equity Release?

    Alternatives to equity release should be considered before a homeowner makes a final decision, as this type of product may not be suitable for everyone.

    Some of these alternatives are:

    • Downsizing
    • Remortgaging
    • Earning additional income
    • Using other credit facilities
    • Using savings
    • Applying for benefits
    • Taking out a Retirement Interest-Only (RIO) mortgage
    • Switching equity release

    Latest News and Updates on Equity Release in the UK

    Equity release news is vital for making well-informed decisions. Stay updated through the Equity Release Council website to learn about industry standards, and consult the Financial Conduct Authority register to evaluate providers.

    Answering the Top Equity Release Questions for 2024

    This section demystifies equity release, addressing common queries about costs, eligibility, and the impact on inheritance in 2024.

    What Is the Process of Equity Release in the UK?

    How Does Equity Release Affect My Estate?

    What Are the Risks Involved in Equity Release?

    Can I Lose My Home with Equity Release?

    What Are the Alternatives to Equity Release?

    What Are the Potential Benefits of Equity Release as a Financial Solution?

    What Are the Disadvantages?

    What Are the Main Differences between Drawdown and Lump Sum Plans?

    What Repayment Options Are Available?

    How Do the Repayment Options Affect the Overall Cost of Equity Release?

    What Types of Properties Are Eligible for Equity Release in the UK?

    What Are the Potential Tax Implications Associated with Equity Release?

    How Can I Integrate Equity Release into My Retirement Planning Strategy?

    Can Equity Release Be Used to Cover Long-Term Care Costs?

    Can I Sell My House If I Have Equity Release?

    Is Equity Release Legal Advice Compulsory?

    Final Thoughts on Equity Release in 2024

    Could releasing equity be a way to fund a more comfortable retirement?

    This depends on your circumstances, and it is important to remember that there are risks involved, such as potential fees, compounding interest, and an impact on the size of your estate.

    As always, knowledge is power, and a qualified advisor can be your best ally on your equity release journey.

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