Equity Release Explained

Starting from the basics to the more advanced tips.

Make yourself an expert in this topic.

Do you want to discover all there is to know about equity release? Our expert team has put together a comprehensive guide on how these products can help you unlock cash for a dream retirement!

We've done the research, weighed up the pros and cons of over 220 plans, and kept up to date on the 2021 equity release market, helping you get peace of mind when it comes to this life-changing decision.

If you’ve recently retired or are aiming to do so in the next few years, you may be short on the cash you need to make your dream retirement a reality. From kitchen and bathroom upgrades to family commitments and holidays, equity release can deliver the cold-hard-cash you need to make things happen.

What Exactly Is Equity Release?

Equity release refers to the action of unlocking the wealth tied up in your home. You’ll take out a long-term property-based loan (also called a later life loan) that’ll be repaid in full once you pass away or move into a long-term care facility.

Tip: With any equity release scheme, you don’t need to worry about what will happen to your partner once you’re no longer around. In the case of a couple, the property will only be sold once the last person passes on or goes into long-term care.

And there’s more:

Whether in the form of a lump-sum or smaller instalments (referred to as a drawdown), the cash that you unlock will be tax-free. This is because when you release equity, there’s no capital gain (which would have to be above the set threshold). After all, you’re borrowing money against your home.

Tip: Should you invest your money, any interest earned may be subject to tax so always be clear about your intentions when speaking to an advisor or solicitor.

Also, most equity release products will not require you to make any instalments during your lifetime. With that, you won’t be asking yourself anymore: “what does equity release mean?”

Equity Release

The 10 Most Popular Uses For Equity Release

  • Consolidate your debts
  • Overcome pension shortfalls
  • Purchase expensive items such as caravans and vehicles
  • Increase your standard of living during retirement
  • Fund holidays and other leisure activities
  • Make home improvements
  • Assist a loved one financially
  • Provide an early inheritance to your loved ones
  • Repay your interest-only mortgage

Learn More: The Top Equity Release Uses

Which Products Can You Get Your Hands On?

 There are two primary equity release products available, both of which will be further tailored to suit your specific circumstances and needs.

Let’s take a look at these options:

How Releasing Home Equity with a Lifetime Mortgage Works

Lifetime mortgages offer you a large loan of up to 60% of the value of your home. Since it’s secured against your home, it’s similar to a regular mortgage. Interest will be added to the capital loan amount every month. Lifetime mortgages are the most common type of equity release in the UK as they include a no negative guarantee and a host of additional benefits.

What does this mean?

It means that you (or your estate) won’t owe a total that exceeds the value of your property. A no negative guarantee ensures your estate, and therefore, your loved ones will not incur any debt.

Want to know the best part?

You don’t need to make any installments towards the loan (unless you choose a specific drawdown plan that allows this!) and you retain full ownership of your home. You can also stay on in your home for as long as you want to or until you go into long-term care.

The Standard Equity Release Criteria Is:

To be eligible for this type of equity release the property must be your primary residence, you must be 55+ years and have no outstanding mortgages on the property.

Tip: Consider opting for a drawdown so that you’re only charged interest on the amount that you’ve used.

Home Reversion Schemes

This product allows you to determine how much of the value of your property you want to release. A provider will purchase a set share of your property (which will usually be far below its actual value) of up to 100%.

And there’s more:

You’ll then be offered a lifetime lease to live on the property and can live in it until you pass on, go into long-term care, or move out. Home reversion schemes are only available to people aged 65 and older.

Tip: If you’re living with a medical condition that’ll likely decrease your life expectancy, you may be able to access options with much more favorable terms.

Let's Break It Down Slowly

What Added Safety Measures Does Equity Release Have?

Since equity release can pose risks to you and your estate, the provider has a couple of optional safety features. One of these is inheritance protection that allows you to ring-fence a portion of your home’s value to make sure that it’ll be available to your beneficiaries.

But, be careful:

Another option is to opt for a product that includes downsizing protection. Downsizing protection1 will allow you to sell your home and pay off the loan without penalties if you want to downsize.

Tip: In addition to considering your current financial circumstances and immediate needs, you must consider your possible future needs.

To summarise, the benefits of equity release include:

  • Access to a large sum of cash
  • You can remain in your home for the remainder of your life or until you go into long-term care
  • You can move to a new home should you so wish to
  • You can safeguard a portion of the value of your property if you want to ensure your beneficiaries receive a particular inheritance
  • You can choose to receive the loan in one large lump-sum or a small pay-out followed by regular pay-outs made from your cash reserve
  • No monthly repayments are required
  • The interest rate is fixed
  • With a no negative guarantee, you don’t have to worry that your estate will incur any debt exceeding the value of the property

While there are many benefits to equity release, there are some risks that you need to consider. These include leaving behind a smaller inheritance and a reduction in the welfare benefits you’ll be entitled to.

Here’s a summary of the disadvantages of equity release:

  • Leaving behind no or a reduced inheritance to your loves ones
  • With interest being compounded, the amount your estate will owe to the provider will build up quickly (and substantially).
  • A small advance on your home’s value will require you to sell a large share of your property to the provider (in the case of home reversion schemes).
  • The interest rates will be higher than those you’d access by taking out a traditional mortgage.
  • Once you’ve taken on a loan, it will be costly to back out, with some providers charging you up to 25% for early repayment.
  • If you opt for a home reversion scheme and the value of your property increases, it’s the provider that will benefit from the rise in its share of your property. Your estate will, therefore, not receive the full market value for the percentage sold.
  • Your estate may be affected by negative inflation in property prices

Tip: To ensure that equity release is the right option for you, seek financial advice from an independent provider.

Is Equity Release the Next Best Thing

What Are the Pros & Cons of Equity Release?

Before deciding on a plan you need to consider the pros & cons.

What are the Risks?

In addition to the above disadvantages, there are also risks involved with equity release. This includes receiving far less for your home than its market value and owing double the capital loan amount (assuming an interest of 5% over 15 years).

Let me tell you something:

Equity release may also affect your right to receive benefits (precisely benefits that require a means test). If you decide to move house, later on, you may struggle to do so if your provider disapproves of the new residence. If you want to pull out of the agreement, you may be liable to pay cancellation fees.

What are the Costs?

Despite all of its significant advantages, equity release does not come cheap. For instance, if you opt for a home reversion scheme and wish to access a mere 20% of your home’s value, you may have to surrender up to 70% of your property.

Simply put:

Lifetime mortgages are more affordable, but since the interest will be rolled over, the total amount owed will increase substantially over time. While typical equity release rates are around 5%, in a bid to outcompete one another, competitors may offer rates as low as 2.55%!

What Is The Easiest Way Of Getting A Quote?

To find out how much you can release, you can look at the property prices in your area or speak to a real estate agent. You can then use an online equity release quote generator to help you determine how much you could release.

This is the most important step to take:

Most calculators only require the value of your property and your age to calculate the maximum and minimum equity release amounts. Another great option is to use a rate comparison site and look at the most competitive equity release rates. If you’d like a formal equity release quote, you should speak to a financial advisor.

Understanding The Application Process

What Affects the Interest Rate You’re Offered?

There are many factors that an equity release provider will take into account when calculating the interest you’ll be charged on your equity release. This can include things such as current market standards, your age, and your health.

Let’s take a closer look, shall we?

How your equity release interest rate is determined:

  • Current market rates
  • The value of your property
  • How much you’d like to borrow
  • Your age
  • Your overall health and whether any conditions will reduce your life expectancy
  • The type of equity release product you’re going for
  • The features specific to your chosen product

Tip: Since interest rolls up and is compounded, the amount you owe will increase substantially over time.

Here are some additional costs that come along with equity release:

  • You’ll have to pay for independent financial advice before releasing equity
  • Establishment fees charged by your provider can cost up to £3,000
  • Various legal costs to ensure you’re the rightful and sole owner of the property
  • Property registry costs for those who purchased their pomes before the 1980s

The 6-Step Equity Release Process

So if you’re thinking of releasing equity, this is the process you’ll need to follow.

  1. If you’ve decided you want to go ahead and release equity, you must consult with a financial advisor who will review your finances, needs, circumstances, and some equity release alternatives. You can find independent advisors on the Equity Release Council‘s website. While you’re there, you can also select a registered solicitor who you’ll have to appoint to handle the legal aspects of equity release.
  2. Once you’ve met with the adviser and have determined that equity release is the best option for you, you’ll need to complete an application, and pay specific establishment fees.
  3. Your equity release company will conduct a valuation and survey of your home, which will be forwarded to your solicitor.
  4. The provider will then send you a loan offer based on the valuation and survey and your requirements, and you must then review this with your solicitor before signing.
  5. Finally, the provider will run some Deeds and registry checks before approving the funds’ released by your solicitor.
  6. Once you’ve been approved, it’ll generally take between 1 and 2 weeks before receiving your equity release pay-out. Any delays in the process will likely be legal or administrative.

Tip: It’s always best to involve your family in the decision-making process to ensure that you end up making the best possible choice for you. Learn more about it with our equity release process guide.

Can You Explain What Retirement Interest-Only Mortgages Are?

Retirement interest-only mortgages are not classified as equity release products but they have a lot of similarities. You can take out a loan secured on your home and still stay there.

And there are differences you need to take into account:

Unlike lifetime mortgages and home reversion schemes, you’ll have to make monthly repayments. These repayments will include only interest which means that the capital loan sum remains unchanged.

And here’s the main advantage:

This is an excellent option for you if you want to safeguard an inheritance. This is only an option for those that can make the required repayments on an ongoing basis.

Have You Thought About Remortgaging? 

If you have a stable income, you may want to consider remortgaging. Most traditional mortgages have interest rates lower than those offered by equity release schemes; you’ll likely get a better deal.

Tip: If the value of your property has increased, your equity has too! This means that you can access additional cash over and above what you’ve paid off.

You’re Probably Wondering – But How Is It All Regulated?

The Equity Release Council2 (ERC) currently regulates the industry and ensures that consumers are treated fairly. They’ll make sure you have your needs and individual circumstances (both financial and other) taken into account when receiving advice and equity release services from providers.

They’re a non-profit organization that set, implement, and enforce rules and principles that’ll protect you when you release equity from your home.

Minimum standards set by the ERC:

  • Lifetime mortgage rates must be fixed or capped (if variable)
  • Homeowners are entitled to a lifetime lease (rent-free)
  • You may move provided that your new residence will meet your provider’s standards
  • All equity release products must include a no negative guarantee (discussed above)

Are There Services Available Offering Advice?

All members registered as advisers with the Equity Release Council are required to go through a 24-point checklist2 with you to ensure that you fully understand what equity release is and what its associated benefits and risks are.

Simply put…

Advisers must take a customer-centric approach when aiding you in determining whether or not equity release is the right option for you. This includes determining whether or not you’re eligible for benefits, have a valid will and budget, and that you’ve been screened for any factors that make you more vulnerable such as declining health, a recent divorce, or emotional and mental problems.

Let me tell you something else:

All these measures are put in place to ensure your best interests are carefully considered.

Tip: Always choose an adviser registered with the Equity Release Council to benefit from the scores of safety measures built into their screening process.

How Does it Work? Let’s Break It Down Slowly

As we’ve said before, it’s a secure way to release money that you’ll pay when you pass away or move into residential care. Its process is also straightforward and easy to understand. That said, here’s a comprehensive guide on the equity release application process.

What you can expect:

Typically, the equity release process can take between 4 and 6 weeks. However, there have been cases completed in just 18 days. This affords you peace of mind and the ability to use your equity release funds sooner.

Want to know more details? There are two kinds of equity release options for you to choose from.

How Exactly Does Equity Release Work

How Does The Application Process Work?

Naturally, you’ll want to allow your application to be an easy and smooth process as that will also provide a level of security to you. You must understand that it is a streamlined smooth process however it has core factors that you need to read up on.

Being aware of these core factors is essential. Your equity release adviser, alongside a case management team, expertly coordinates all the parties involved to ensure your equity release process runs as fast and seamlessly as possible. At various stages of the process, you may find yourself having to pay associated costs.

It’s also important to know how long does the equity release application process take!

Hold On, This is Starting to Sound A Tad Expensive…

At this point, you might be wondering about all the costs involved in equity release. Well, the good news is that they’re at an all-time low, below 3%. Some providers even offer rates as low as 2.25%! That’s incredible!

Let me tell you something:

You’ll end up paying more if you don’t pay off your loan, of course, or if you’re choosing to compound interest monthly. Wondering what equity release costs you’ll have to pay? If you’ve ever taken out a mortgage on your home, it’ll be similar to those costs.

However, there may be a few extra fees you’ll need to pay. You’ll be paying for advice and application services, which are both mandatory. The initial costs you need to pay to access your equity release are dependent on your provider and the product/plan you choose.

For a fully comprehensive breakdown: Equity Release Costs

What Are The Pros & Cons?

It has become safer and safer over the years, thanks to the ERC 1and the FCA2 and the protocols they put in place to protect you.

The Pros

You get instant cash when you need it at all-time low interest rates. You might also have had an increase in your home value that will give you more money to retire or cover all your long-term medical care costs.

The Cons

The main downside is that you won’t be able to get your property’s full market value. Another pitfall is that you’ll have a decreased estate for your heirs to inherit.


The risks of a lifetime mortgage include owing more than you borrowed due to the compound interest applied. You can, however, choose to end your plan earlier. This will cost you early repayment charges.

The risks of home reversion include only receiving 60% of your home’s market value. Some people only receive 30% back. Another risk is that your equity release provider won’t allow you to move house once you’ve taken out a plan on your current property. To avoid such difficult situations, make sure you enquire with your provider before making a decision.

Have You Considered Downsizing

6 Savvy Equity Release Tips

  • Don’t loan the full amount at once, borrow in stages. It’s more cost-effective.
  • Choose a company that’s a member of the ERC, i.e. an accredited company.
  • Ask for professional advice, preferably from an independent financial adviser.
  • Look out for the effects it will have on your benefits. You might lose some with equity release.
  • Look at alternative options that would help you with some extra cash other than equity release.
  • Keep your family in mind. Go with an equity plan that’s best for you and your heirs.

How Protected Am I?

We understand that all of this sounds potentially risky and at the forefront of your mind is the protection people have with regards to equity release. These are genuine and considerable concerns, as it is a flexible and competitive industry that is growing.

Fortunately, there is security protection for those who embark upon an equity release product/plan as there is the equity release council that was established for this very reason. The council works purely for the benefit and assistance of equity release consumers.

For more on this: Equity Release Council

How To Find Expert Advice?

Look for experts or professionals who are unbiased, independent, and experienced in the field of equity release. Advisers who are under the rules and regulations of the FCA are always the best choice. The FCA provides extra protection for you and your finances.

Common Questions

Could This Type of Scheme Help Me Reduce Any Inheritance Tax?

What Are the Alternatives to Equity Release?

Is Equity Release Right for Me?

What Types of Equity Release Are There?

What's Equity Release?

Are You Able to Take Out an Equity Release Mortgage on a Property That Has a Trust Registered Against It?

In Conclusion

Equity release is a great option to get money quickly, while not moving out of your home. With the current low interest rate, it’s a great option. With the ERC there to protect you, it also no longer carries the risks that it once did.

We understand the trepidation and the concern people have with venturing into something new. However we can assure you that we will be there to guide you along the process and answer any question you have on equity release. Feel free to contact us for any further questions.

What People Say

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Frequently Asked Questions

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Could This Type of Scheme Help Me Reduce Any Inheritance Tax?

What Are the Alternatives to Equity Release?

Is Equity Release Right for Me?

What Types of Equity Release Are There?

What's Equity Release?

Are You Able to Take Out an Equity Release Mortgage on a Property That Has a Trust Registered Against It?

Is It right for you?

Download our guide to make sense of equity release or try our simple equity release calculator and get an idea of how much money you could release.

Do you already have a plan?

Here’s how you could save a fortune. Chat with an expert and discover how much equity you can release.
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Use our free equity release calculator & see how much you can release today.

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