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Types of equity release you can get in the UK

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Oct 24, 2022

Different types of equity releases available in the UK

As a leading mortgage brokerage, we often get asked about the equity release schemes, whether they are better than a traditional mortgage and do we have equity release providers.

We work with many customers daily to release equity from their homes and help determine which types of equity release are best for each case.

Contact us below to discuss the interest-only lifetime mortgage and equity release plans and to be introduced to an equity release provider.

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So what types of equity release is available?

Homeowners over 55 can use the equity release scheme to release tax-free cash from their home’s market value. Even if you have an existing mortgage, we can help.

Your home’s age and value will determine how much equity you can release from your equity release plan.

Depending on which equity release product is chosen, you can claim your money in an initial or several smaller lump sums.

The money you release can be used however you wish. People with the equity release scheme often help their children with money problems, buy their homes, or renovate their own homes or any other reason personal to them.

You may also be able to get an inheritance from your chosen lender. The amount you have protected won’t be considered when determining how much you can borrow.

Many equity release providers offer a zero negative equity guarantee. This means you won’t have to repay more than your home’s total value.

You don’t have to repay the money until the last borrower dies or the home is sold and the house is typically sold to pay off the loan.

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These are the two types of equity release schemes:

A lifetime mortgage: This is the most common type of equity release. You can take out a loan against your home while still owning it with a lump sum lifetime mortgage.

A lifetime mortgage can provide you with a tax-free lump sum and allows you to keep 100% of your property. When you die or your last surviving spouse moves into long-term residential care, the loan and all roll-up interest are repaid.

After receiving a lump sum release, you can draw down the loan in stages. This allows you to access the money as you need it. The interest-only option lets you make monthly repayments to pay the interest.

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Home Reversion Scheme:

You can sell all or a portion of your property for less than the market value. You live in your home as a tenant. A home reversion plan is an alternative to lifetime mortgages.

Home reversion plan providers will purchase a portion or all of your property for a lump sum cash payment. You don’t have to take out a loan or pay interest, but you are still responsible for maintaining the property.

There is an explicit guarantee that the property can be yours until you move into long-term residential care.

There are many benefits to spending all the payments immediately, fixing the interest rate for the lifetime or making additional payments if required. You should also be aware that the entire amount will accrue interest regardless of how you use it.

Drawdown Lifetime mortgage:

You can also secure your home with drawdown lifetime mortgages. However, you have the flexibility to withdraw funds in stages rather than all at once. The interest is only charged on money that is removed.

This means it may accrue slower and could reduce the cost to release equity. The interest rate is set at the current rate every time you access funds. However, it may vary for subsequent withdrawals.

This type of equity release plan accounted for 3 in 5 of all plans in the UK during the last quarter of 2021, when the sector experienced growth.

Lifetime mortgage with interest-only features:

Certain lifetime mortgage products allow you to choose to pay the interest monthly. There are no affordability requirements as the payments are voluntary and are not required. The overall cost of borrowing will decrease if you pay off the interest.

If you choose a variable interest rate, and rates rise, your repayments will increase. Not to be overlooked, however, is the fact that ERC member lenders will have a limit that the variable rate can not exceed.

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Additional features:

These features are flexible no matter what type of equity release you choose.

Optional repayments if you don’t intend to clear the interest monthly, you might consider a product that allows you to make optional repayments. These can be up to 10% of the initial amount each year.

Inheritance guarantee – You can get an inheritance with some lifetime mortgages. However, this will limit the equity you can release.

Is equity release secure?

Equity release is a popular and highly-regulated way to get your money. You may have used our online equity release calculator for an estimate but now want to know some means-tested benefits of an equity release plan, start your application below free:

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The benefits of releasing equity

  • You don’t have to pay any taxes on the money you release.
  • Protect your inheritance for your family.
  • You can remain in your home without making any significant changes.
  • Many lenders offer a no-negative equity guarantee, so you will never owe more on your home than its value when sold.
  • You don’t have to repay the loan unless you die or move into long-term care.
  • Many flexible repayment options are available if you want to repay your loan sooner than you originally planned.
  • You can still move after taking the equity release

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It might be worth taking the time to:

  • You might be subject to inheritance tax if you give some of your money to relatives.
  • The interest on a lifetime mortgage is added daily to your monthly owe. The amount you owe over time will increase rapidly, decreasing the equity in your home.
  • Your inheritance will be lessened.
  • You may be charged an early repayment fee if you repay some of your loans earlier than expected.
  • Your entitlement to means-tested state benefits may be affected by your equity release.

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What are the minimum and maximum equity release ages?

The minimum age to release equity is 55. However, this can vary from one provider to the next. The youngest applicant must be 55 or older if the application is joint.

What is the time frame for equity release?

It usually takes between 8-15 weeks to release equity. This will vary depending on the product and the provider.

What is the cost of equity release?

You should know the costs associated with regular mortgages and some fees that may apply to your application. These include arrangement fees, solicitor’s fees and interest rates.

How can I repay my equity release mortgage?

Usually, the loan can be repaid by selling your house after you die or moving into long-term care. You can choose to pay all or part of the interest at once.

There are several options for early repayment:

There are limitations on the amount you can repay and the frequency you can make repayments, depending on the product you choose. An advisor can help you choose the best option.

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Can equity release allow me to protect my inheritance?

You can take steps to ensure that you can pass on the inheritance you want.

  • Choose Inheritance protection: This option allows you to secure a portion of the net proceeds from your home for your beneficiaries upon your death. This option will limit the amount of loan you can take. When applying for a lifetime mortgage, choose the percentage you want to protect.
  • Repay the loan in instalments over your life. You have the option to repay a portion or all of it. You can also repay some of the capital or reduce your owes, leaving your family more to inherit upon your death.

Living inheritance: A lifetime mortgage can be used to transfer money to your heirs while you are still alive. You might want to leave a living legacy for your children to pay their college fees or help them get on the property ladder.

The recipient may need to pay inheritance taxes in the future if you give the money in this manner.

What happens if I enter care?

If the mortgage is only in your name, the house will be sold and all interest paid back, and any money left can be used to pay for your care. If the mortgage is held in joint names, your partner and you can continue to live in the home until the end or until you move into a care facility.

Once the house is sold, after the interest and loan have been paid, any money can be used for care expenses or to repay any debts.

Can equity release be used to pay for care?

You can use the money you have released from your home for in-home care.

How do I get advice for releasing equity from your home?

Start your equity release application below now to get free advice from our FCA regulated brokers:

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