Facts about equity release

20 facts about equity release

Written in line with our editorial policy.

If you’ve heard about equity release but are unsure how it works, this article is for you. We have broken down some of the most important equity release information about this form of lending for over-55s into 20 facts.

We hope that these equity release facts will answer most of your initial questions. From the main eligibility criteria to tax and interest rates, we cover much of the essential information about equity release.

Elsewhere on our website you’ll find more detailed information and facts about equity release. You can of course also call us on 0808 178 3055, or request a call back and we’ll be happy to help further. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.

Fact 1: You must be 55 or over to take out equity release…

The standard minimum age for a lifetime mortgage (the most popular form of equity release) is 55. Currently, no UK provider will let you take out equity release if you are under 55.

Fact 2: …But some providers only lend to people aged 60 or over

However, some providers have a standard minimum age of 60 or higher, or set different minimum ages depending on the type of plan you take out. Also, 60 is the standard minimum age for home reversion plans (a second, less popular form of equity release).

Fact 3: You can pay off the loan early

This is one of the equity release facts that will surprise people who think you are ‘locked in’ for life with this type of lending. Although an equity release plan is usually paid back when you pass away or move into long-term care, you can pay back the loan earlier if you wish. This is likely to incur an early repayment charge, although some lenders waive this charge in certain circumstances.

Fact 4: The older you are, the more cash you can release

The older you are, the more money you can typically release from your home. This is because life expectancy is a key factor that lenders consider when deciding how much they will lend through equity release. Put simply, the sooner the lender anticipates the loan being repaid, the more they are willing to lend.

Fact 5: You may be able to release more due to health and lifestyle

You may be able to benefit from higher tax-free cash releases with an enhanced lifetime mortgage. You could be eligible if you are living with certain health conditions or lifestyle factors. Lenders assume that these borrowers will generally have a shorter than average life expectancy, so they may lend more.

Fact 6: Your property might have to be worth at least £70,000…

Houses and bungalows with a value of £70,000 or more typically fall within the acceptable criteria for equity release. That’s the minimum value set by a number of lenders, however some have different criteria. For example, Aviva has a minimum property value of £75,000.

Fact 7: …But some properties have to be worth at least £100,000

Other property types tend to have a different minimum value criteria, and this is true across a number of lenders. For example, Legal & General equity release requires flats, maisonettes and former council properties to be worth at least £100,000 to qualify for a lifetime mortgage. They have the same criteria for former Ministry of Defence properties.

Fact 8: Most parts of the UK are eligible for equity release

Equity release providers cover most areas of the UK, although some areas aren’t served by every provider. For example, some providers don’t consider applications from the Scottish islands or the Channel Islands.

If you are unsure about whether your area is covered, please contact us at Equity Release Wise. Our selected advisers will do everything they can to help you find a suitable provider.

Fact 9: The money you release is tax-free

You don’t pay income tax on the money you unlock with equity release. That’s because it’s a loan, and loans are typically exempt from income tax. 

 You could potentially be liable to pay tax on any interest you earn if you move your equity release money in a savings account. To avoid this, you might decide to opt for a drawdown lifetime mortgage. This lets you take your money only when you need it, rather than keeping it in a savings account. It can also reduce the amount of interest that will need to be paid on your loan.

Fact 10: 2022 was a record-breaking year for UK equity release

The Equity Release Council’s Q4 2022 market statistics report said that: “2022 saw record activity with 93,421 new and returning customers choosing to access their property wealth via equity release products.”

It went on to report: “Total annual lending reached £6.2bn, a new high following the 30th anniversary of voluntary regulation being introduced.”

Fact 11: When you release equity you must pay off any outstanding mortgage

The first part of your cash release must go to your existing lender to pay off any outstanding mortgage. That’s quite understandable really, as you wouldn’t expect to have two mortgages on the same property. After your current mortgage is cleared, how you spend the rest of your release is up to you.

Fact 12: You can use equity release to help loved ones onto the property ladder

Saving up enough money to pay a deposit is difficult for many first-time buyers. That’s why releasing equity to help loved ones onto the property ladder is one of the most popular reasons for equity release. For example, Legal & General say that 11% of their drawdown lifetime mortgage clients use the money to help family members meet financial goals.

Fact 13: The interest rate is usually fixed for life

When you take out an equity release plan, the interest rate is usually fixed for life. This means that with a lump sum lifetime mortgage where you take a single cash release, the rate set at the beginning of the loan remains the same throughout the loan period.

Things work slightly differently with a drawdown lifetime mortgage. With these plans, you take an initial lump sum, and then draw additional cash instalments over time. Here, you would pay a different interest rate on each instalment, depending on the lender’s interest rate at the time of each withdrawal.

Some plans do however feature variable interest rates, similar to traditional ‘tracker’ mortgages. To give you some protection against rising interest rates, these plans typically feature a ‘cap’ so that the interest rate won’t go higher than a predetermined level.

Fact 14: Having an equity release plan doesn’t stop you from moving house 

Now it’s time for another equity release fact that may surprise you. As long as your new home meets your provider’s criteria, you will be able to move house and take your equity release plan with you. 

Equity release providers recognise that many people in retirement decide to downsize or move closer to family. What’s more, Equity Release Council approved plans all feature the right to move house. Our selected equity release advisers can of course provide you with more information about this.

Fact 15: You won’t leave a debt to your loved ones

One of the most reassuring facts about equity release is that all plans that meet Equity Release Council Product Standards come with a ‘no negative equity guarantee’. This means that you or your estate will never owe more than the property is worth when it’s sold after you pass away or move into long-term care.

Even with this guarantee, releasing equity is likely to reduce the value of your estate. This equity release information may therefore be something to discuss with your family members when considering equity release.

Fact 16: You still own your home with a lifetime mortgage…

A lifetime mortgage is a loan secured against your property. You still own your property and continue to live in it until you pass away or move into long-term care. This is the most popular type of equity release.

Fact 17: … but not with a home reversion plan

A home reversion plan involves releasing equity by selling all or part of your home. With these plans, you can remain in your home rent-free until you pass away or move into long-term care.

Fact 18: Equity release is regulated by the Financial Conduct Authority

Finally, let’s look at three equity release facts that will provide you with some reassurance and peace of mind if you are thinking about this form of later life lending.

First, equity release is one of many financial markets supervised by the Financial Conduct Authority (FCA). Anyone offering you advice on equity release, or providing you with an equity release product, must be regulated by the FCA. They will be required to follow strict rules and codes of conduct.

Fact 19: The industry is also overseen by the Equity Release Council

The Equity Release Council (ERC) is the UK’s equity release industry body. When you deal with advisers who are Equity Release Council members, they commit to following the ERC code of conduct and standards.

For your peace of mind, when the team here at Equity Release Wise arranges appointments for our customers, we only do so with selected equity release advisers who are FCA-authorised AND members of the Equity Release Council.

Fact 20: You should take advice before taking out an equity release plan

Equity release isn’t for everyone and there may be better ways to meet your financial needs. We recommend taking professional, specialist advice before deciding if it’s the right option for you.

The Financial Conduct Authority (FCA) also recommends taking advice. The FCA Handbook states that firms selling equity release should provide advice to the customer rather than working on an ‘execution only’ basis UNLESS the customer rejects advice and accepts that they will not be protected by the FCA’s rules and standards for advisers.

Need more equity release information? Speak to a specialist today

Now that you have more equity release facts, you may want to look into equity release information further. To find out whether equity release could work for you, or if another option makes better sense, speak to our friendly team on 0808 178 3055. They can connect you to one of our carefully selected advisers who can answer all your questions and check your eligibility for a plan. 

You can also request a free call back here or get a free quote and an initial indication of how much tax-free cash you could unlock.