Equity Release: frequently asked questions

Answering your equity release questions

Written in line with our editorial policy.

If you’re unsure about any aspects of equity release, that’s understandable. There’s lots to think about when considering your later life finance options. That’s why we thought it would be helpful to answer ten of the most popular equity release frequently asked questions.

From fundamental equity release FAQs like ‘How does equity release work?’ and ‘How much equity can I release?’ to more specialist questions like ‘Can I sell my house if I have equity release?’ and ‘How safe is equity release?’ – we’re here to help.

These are the ten questions about equity release covered in this article:

• How does equity release work?
• How much equity can I release?
• Do you pay tax on equity release?
• Can you be refused equity release?
• Can I sell my house if I have equity release?
• Can you pay back equity release?
• How safe is equity release?
• What are the pitfalls of equity release?
• Is equity release a good or bad idea?
• What are the alternatives to equity release?

If you’d rather cut straight to the chase and find out how much equity you can release, you can check your eligibility. And if you want to put your equity release questions to someone in person, please call 0808 178 3055 or request a call back. We’ll answer your initial questions and connect you with specialist equity release advisers for further help if you wish.

How does equity release work?

It’s no surprise that this is one of the top equity release questions. Most of us at one time or another have a mortgage or life insurance and know how they work, but equity release is less common. Although thousands of people release equity in the UK each year, it may be something you haven’t looked into yet.

Take a look at our ‘What is equity release?’ page for our guide to the basics of equity release, including the difference between the main types of equity release. Whichever type you take, you have the option of releasing a cash lump sum with no monthly repayments. Instead, the plan is typically repaid when you pass away or go into long-term care.

How much equity can I release?

How much you can release will depend on several factors, including your location, how much your property is worth, the provider and type of equity release plan you choose. These factors and others will determine the percentage of your property’s equity that you can release as tax-free cash.

Many people are unaware that their health and lifestyle can also affect how much equity they can release. Some providers let you borrow more through an enhanced lifetime mortgage if you are living with certain conditions or illnesses, or if you have a history of some medical problems. Lifestyle choices such as smoking and drinking can also mean you’re eligible for more money.

Read more: How much equity can I release from my home?

Do you pay tax on equity release?

Whether you choose to access your cash as a lump sum or in a series of payments over time, you won’t have to pay income tax on the money you release. This is because the money is a loan, and loans are typically exempt from tax that applies to other forms of income.

However if you put your equity release money into a savings account rather than spend it straight away, any interest you earn on these savings could be subject to tax. 

Read more: Do you pay tax on equity release?

Can you be refused equity release?

The answer here is definitely ‘yes’ – you can be refused equity release for a number of reasons. Each of the UK’s equity release providers have their own lending criteria and you might not meet them all. 

Here are some typical criteria to give you a guide as to whether you will be accepted or refused equity release. You must:

• Be aged 55 or over for a lifetime mortgage or 60 or over for a home reversion plan. When a couple makes a joint application, the age of both applicants on the deeds of the property must meet the above criteria. 
• Be a UK resident.
• Own your own home in the UK, and it should typically have a value of £70,000 or more.
• Own a type of property that meets the provider’s criteria – for example, some providers will not accept homes of a ‘non-standard’ construction.

Read more: Are you eligible for equity release?

Can I sell my house if I have equity release?

The important thing here is to make sure that the equity release plan you take out is approved by the Equity Release Council and complies with their standards. That’s because these plans give you the right to sell your house and take your plan with you – this is known as ‘porting’ your plan.

The provider will however require that your new property meets the same criteria as if you were taking out a new plan. This is because equity release providers may be unwilling to accept properties that might be difficult to sell, as this is how your equity release plan will be repaid.

Read more: Selling and moving home with equity release.

Can you pay back equity release?

Equity release is usually paid back through the sale of your home when you pass away or move into long-term care. Your beneficiaries can however pay it back from your estate instead of selling the property, such as by using money paid out by a life insurance policy.

Paying back equity release early is also possible. This typically means there are early repayment charges to pay. However, these charges might be waived in some circumstances, such as if you pay it back after a period of time specified in the plan’s terms and conditions.

How safe is equity release?

Thankfully, protections are in place to protect anyone taking out an equity release plan. The industry is regulated by the Financial Conduct Authority, the government body responsible for regulating financial firms in the UK. It has extensive standards in place for anyone advising on equity release or providing equity release products to follow.

Another layer of consumer protection is provided by the Equity Release Council (ERC). Because our selected advisers are members of the ERC, they have signed up to its standards and only recommend equity release plans that meet them. These standards include a ‘no negative equity guarantee’ to ensure you or your loved ones will never owe more than your property is worth. 

Finally, it is worth mentioning that you will need to use the services of an equity release solicitor when making an equity release application. They will act on your behalf, ensure you understand the risks and rewards of the contract you are entering into, and take care of the legal side of the equity release process.

Read more: How is equity release regulated?

What are the pitfalls of equity release?

As with other types of personal finance, equity release isn’t right for everyone. It’s something that you should only consider when you’ve looked at other, potentially more affordable ways to raise money. 

For example, equity release can reduce the value of your estate and the size of any inheritance you leave to your loved ones. Also, how much you owe grows quickly as the interest rolls up on a compound basis – although you can make interest payments instead with an interest-only lifetime mortgage.

There are other potential pitfalls of equity release to consider. Please take a look at our ‘pros and cons‘ page for more information on the potential pitfalls and advantages of equity release. 

Is equity release a good or bad idea?

It is of course impossible to give an answer to ‘Is equity release a good idea?’ as everybody’s needs and circumstances are unique. As mentioned above, you really should make sure you get a balanced view of equity release, taking into account its advantages and disadvantages.

Thousands of people who release cash from their property wealth each year would say it was a good idea for them. For example, the reasons that people do equity release include paying off their mortgage, making home improvements, helping family members financially and funding a better lifestyle.

Equity release can also be a help if you are struggling with debt problems. As National Debtline point out, equity release can “ease pressure on you if your creditors are chasing you for payment”. However, you should make sure you understand the long-term cost of equity release, including the interest rates you’ll pay, when deciding if it’s a suitable option for you. 

What are the alternatives to equity release?

This is certainly a sensible equity release question. There are alternatives that may be more suitable than equity release if you need access to cash.

Equity release can be an expensive way to raise money, and some alternatives might be cheaper or easier to arrange. Some of the potential alternatives to equity release include:

• Downsizing.
• Remortgaging.
• A retirement interest only mortgage.
• Taking in a tenant or lodger.
• Accessing your savings.
• Selling assets such as valuables or a second home.
• Accessing grants such as Disabled Facilities Grants.
• Checking to see if you are entitled to more benefits than you currently receive.

 Read more: What are the alternatives to equity release?

What are your own questions about equity release?

Do you have questions to ask about equity release? There’s a lot to think about when unlocking money from your home through a lifetime mortgage or home reversion plan, and we want to help answer all your equity release FAQs. 

Please do call our friendly UK-based team today on 0808 178 3055 or arrange a free call back and we’ll be delighted to help. We can also connect you to one of our selected advisers who can provide equity release advice to help you make the right decision.