Equity release examples & case studies

How can you use equity release to meet your needs?

It can be helpful to look at equity release examples if you are considering this form of lending for people aged 55 or over. 

Everyone has their own reasons for taking out equity release. It could be to fill a gap in their retirement income, raising funds for holidays or home improvements, or many other reasons. But which form of equity release is suitable for which situations?

In this article, we explain how different types of products work and give you six equity release examples. We cover the following information:

• What is equity release?
• What are the main types of equity release?
• Who is eligible for equity release?
• Six equity release examples:

1. Lump sum equity release examples.
2. Drawdown equity release examples.
3. Interest-only equity release examples.

• Protection and guarantees with equity release
• Potential pitfalls of equity release
• Alternatives to equity release
• Is equity release right for you?

We hope these equity release examples will help you understand the reasons people are choosing this form of lending, and shed light on whether it might be suitable for you. Our selected equity release advisers are also available to discuss your circumstances and offer further information and advice.

Just call us on 0808 178 3055 or request a call back and we’ll arrange a no-obligation appointment with an adviser for you. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.

What is equity release?

Before we get into specific examples of equity release, we want to take a moment to make sure you understand how equity release works. In short, it’s a financial product aimed at later life homeowners who want to unlock some of their property wealth without having to move home.

There are typically no monthly repayments to make as the money released (plus interest if it’s done with a lifetime mortgage) is only repaid when you pass away or move into long-term care. At this point your home will be sold to fund the repayment. Any money left over from the sale is left for you if you move into care, or to your estate to distribute according to your will if you pass away.

What are the main types of equity release?

There are two types of equity release available in the UK: lifetime mortgages and home reversion plans. Below we summarise how these plans work, and give you links to our more complete product guide pages, then we’ll move on to eligibility and examples of equity release plans. 

Lifetime mortgages

The most popular form of equity release is a lifetime mortgage. This is a loan secured against your property, so you need to be a homeowner to take one out. The loan plus interest is typically paid back through the sale of your home when you pass away or move into permanent long-term care.

Lifetime mortgages are typically available to people aged 55+. After releasing a percentage of your home’s value, you’ll still retain full ownership of your property. 

There are a few types of lifetime mortgage:

• Lump sum lifetime mortgage. You release all the money you apply for in a single one-off payment.
• Drawdown lifetime mortgage. You take an initial lump sum payment and further money is held in reserve for you to withdraw as and when you wish.
• Interest-only lifetime mortgage. You can prevent or reduce interest from accruing on your loan by paying off some or all of the interest each month. 

All of the above are available as an enhanced lifetime mortgage from some lenders. If you have a qualifying health condition or have made certain lifestyle choices, you may be able to unlock more cash or benefit from lower interest rates. 

Home reversion plans

With a home reversion plan, you sell all or a percentage of your property in exchange for a lump sum payment or a regular income. The money is typically paid back via the sale of your home when you pass away or move into long-term care. You pay no interest, but you receive considerably less than the market value for the proportion of the property you sell. 

As with a lifetime mortgage, you have the right to stay in your property until you pass away or move into long-term care. But the difference is that you will stay in your home as a tenant with no rent to pay, since you will no longer retain full ownership of your home. 

Another difference is that whereas lifetime mortgages are available to people aged 55+, you typically need to be 60 or 65 to qualify for home reversion, depending on the provider’s criteria.

Home reversion plans are much less common than a lifetime mortgage nowadays. However, they are a useful option to consider for some people. For example, you may be able to release more money with a home reversion plan than with a lifetime mortgage.

Who is eligible for equity release?

As well as the minimum applicant ages mentioned above, there are a number of other criteria for equity release eligibility. Here are some examples of equity release property criteria:

Property value. Houses and bungalows with a value of £70,000 or more are typically accepted. Other properties may differ; for example, lenders typically require former council properties to be worth at least £100,000.

Property type. Many out-of-the-ordinary properties that used to be refused for equity release are now sometimes accepted. However, homes of a non-standard construction such as concrete, timber-frame and metal-frame are often not eligible.

Property tenure. It can be more difficult to get equity release on leasehold properties than freehold properties, depending on the length of lease remaining. 

Property location. Equity release providers depend on being able to sell your property to get their money back. They may therefore be wary of lending against properties that might be difficult to sell due to their location. 

Read more in our guide to equity release eligibility, or if you would like to discuss your eligibility please contact us and we will be happy to help.

Six equity release examples:

Now let’s look at six examples of equity release. We’ll focus on lifetime mortgages, as this is the most popular form of equity release. Of course, everyone’s circumstances are different so if you don’t see an example that looks like your situation, please contact us to arrange advice on the suitability of equity release for you.

Important: The following equity release example scenarios are for information only and do not constitute financial advice. Please make sure you receive advice from an equity release specialist before deciding whether this is a suitable form of financing for you. We can arrange an appointment with one of our selected advisers: simply call us on 0808 178 3055, or request a call back at a time that suits you.

Lump sum equity release examples

As the name suggests, lump sum lifetime mortgages give you a one-off opportunity to release tax-free cash from your property.

Example 1 – Clearing a mortgage and paying for home improvements 

A recently retired couple want to stay in their home but still have a little mortgage to pay off, which is eating into their monthly income. Their home is also in need of some renovation work which they can’t afford from their savings. They especially want a new conservatory to give them more living space and a spacious place to entertain family and friends. 

They talk to an equity release adviser, who goes through alternatives with them, including downsizing. However, the couple downsized to their small home just a few years ago and didn’t want to go any smaller, or to leave the area where they were very happy.

A lump sum lifetime mortgage lets them release enough cash to clear their existing mortgage and fund the home improvements including a high-quality conservatory. Without the burden of monthly mortgage payments, they will have more disposable income each month. They will also have extra living space that they can enjoy throughout their retirement.

Example 2 – Helping children get onto the property ladder

A couple who are financially secure but who don’t have substantial savings want to help their son and his wife get on the property ladder. With affordable rental properties increasingly harder to find, buying a home makes financial sense for the young family. The parents don’t wish to downsize and so release equity from their home to go towards a deposit on their son’s first home. 

Their son understands that this will mean he will have less inheritance in the future, but he would rather get on the property ladder now instead of waiting. The son also knows that it is possible to pay off the lifetime mortgage early and hopes to do this either partially or in full once his financial position is more stable.

For his parents, they are simply happy to help their son and his wife finally buy their first home. Without equity release, they would have been unable to have helped without having to sell up and leave their home.

Drawdown equity release examples

A drawdown lifetime mortgage lets you take an initial lump sum, and then draw additional cash instalments over time.

Example 3 – Boosting retirement income for regular holidays

A couple find that their retirement income isn’t enough to give them the lifestyle they want. Like millions of other people, they didn’t build up big pension funds and so are mostly relying on the State Pension for income. This means they can no longer take the trips abroad that they once enjoyed.

They realise they are sitting on significant equity in their home and decide to access it while they can still enjoy it. Although they would like to leave something to their children, the family agrees that a better lifestyle now is more important.

To reduce the amount of interest building up on the equity release plan, they opt for a drawdown lifetime mortgage. They initially arrange a release of around £10,000 to meet some pressing financial needs and take their first cruise holiday since retiring. 

They also set up a withdrawal facility of a further £60,000. They feel relieved that this facility is there to call on when needed on an ad-hoc basis. The drawdown plan means they will only start accruing interest on the money they release, as and when they take it. This will reduce the impact the plan will have on their children’s inheritance.

Example 4 – Funding long-term home improvements

A widow is determined to stay in her home of 50 years but knows that a number of home improvement projects will be needed in the next few years. First, the house needs a new roof as the old one has started to leak. She would also like a new and safer driveway and patio, a new bathroom and a kitchen makeover.

She has children who are financially stable but unable to help their mother financially. They aren’t concerned about maximising their inheritance and want their mum to access her property wealth while she can still enjoy it.

The family choose a drawdown lifetime mortgage to fund each home improvement project as and when needed. This will reduce the amount of interest that builds up on the loan. This also gives the woman some flexibility, as she can’t be certain of just how much will be needed, and on what schedule. With a drawdown plan, she can take what she needs, when she needs it. 

Interest-only equity release examples

An interest-only lifetime mortgage gives you the opportunity to make voluntary monthly interest payments on the loan.

Example 5 – Buying a nice car and caravan  

A couple in their early 70s are mortgage-free and have a comfortable monthly income from their pensions, but don’t have significant savings in the bank. They have always enjoyed caravanning, but their current car and caravan are old and starting to cost too much to maintain.

The couple have considered a bank loan but are struggling to borrow enough and afford the repayments. But with a lifetime mortgage, they won’t have to make any repayments on the loan itself. However, they can afford the interest repayments and so choose this option to reduce the overall cost of the loan – meaning they will be able to leave a bigger inheritance.

Example 6 – Clearing debt 

A man in semi-retirement in his early 60s needs some money to help him clear some debt. He has looked into all the alternatives, including going into bankruptcy, but after getting professional advice decides that equity release is the best option for him.

As he would like to preserve as much of his property’s future value as possible to leave something to his children, he chooses an interest-only lifetime mortgage. He can afford to pay the interest in full each month to maintain a level balance on the outstanding loan.  

He knows that his income is due to fall when he reaches retirement, so if that means he’ll no longer afford the interest repayments he can stop making them. At that point, the plan will switch to a standard lifetime mortgage and interest will start accruing from that point. This is unlike other loans such as a retirement interest only (RIO) mortgage, where your home could be repossessed if you stop making the interest payments.

Protection and guarantees with equity release

The Financial Conduct Authority (FCA) regulates the equity release industry. Among the protection this offers is the fact that anyone advising on equity release or providing equity release products must abide by a set of standards. These are covered in the FCA Handbook and include a requirement for advisers to consider alternative ways that the client might raise funds.

To further protect consumers, the industry’s regulatory body – the Equity Release Council – created a set of guarantees that its members must offer you. There are five equity release guarantees that give you peace of mind from when taking out a plan from a provider who is a member of the Equity Release Council:

• The ‘no negative equity’ guarantee, so that you or your family will never owe more to your equity release lender than your property is worth.
• The right to stay in your home for life.
• The right to sell your home and move without penalty.
• The right to make penalty-free partial repayments on your plan.
• Fixed interest rates for life – or rates that won’t go over a capped maximum level.

Please see our guide to equity release guarantees for more information.

Potential pitfalls of equity release

It’s important to understand that equity release has its potential disadvantages, as well as its benefits. We cover these in some detail on our guide to the pitfalls of equity release, but here is a summary:

• Equity release will reduce the value of your estate and the amount of inheritance you leave to your family.
• The total loan amount can grow quickly as compound interest builds up, unless you choose an interest-only plan and keep up full interest repayments.
• Releasing money through equity release might affect your entitlement to some means-tested state benefits, including homecare fully or partially funded by your local council.
• You may have to pay equity release early repayment fees if you wish to repay the loan early, although some lenders waive these in some circumstances.
• If you gift some of the money you release to family or friends, they may be liable to pay inheritance tax in the future.

Alternatives to equity release

There are several alternatives to equity release and our selected advisers can talk through them with you. In particular, they will help you explore whether any alternatives are viable, since some may be less expensive overall than equity release. 

Alternatives worth considering include downsizing, help from family or friends, selling assets or applying for grants. Please see our guide to alternatives to equity release for more information.

Is equity release right for you?

To find out whether equity release could work for you, and to get quotes from leading providers, call our friendly team. They can connect you to one of our carefully selected advisers who can:

• Verify your eligibility.
• Explain the pros and cons of equity release for your circumstances.
• Advise on whether equity release is the best financial option for you.
• Search for the most competitive products.
• Help you decide which plan best suits you.
• Answer all your questions.
• Expertly guide you through the application process through to completion.

To arrange an appointment with an adviser, please call 0808 178 3055, or request a call back for a time that suits you. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.

About Richard Groom. A writer with 20+ years’ experience across several sectors including financial services, Richard has a passion for writing clear and simple content on even the most complex of subjects. In his spare time, Richard loves exploring the hills and mountains of the UK on long walks with his faithful cocker spaniel. Follow Richard on LinkedIn