How does equity release work?

Wondering how equity release works? Our guide covers key information about how equity release could unlock tax-free cash from your home.

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How to release equity from your home

Equity release is a way to access your property wealth without having to move or make monthly loan repayments. If you are a UK homeowner aged 55 or above, depending on lending criteria, you may be eligible for releasing tax-free cash that could make a real difference to your financial situation.

There are a number of things to understand before deciding whether equity release is right for you. In this guide, we look at key information about how equity release works.

At Equity Release Wise, we’re here to help you explore how to release equity from your home. We bring you access to information, advice, quotes and competitive deals through our carefully-selected equity release advisers.

To find out how much you could borrow, check here or talk to one of our friendly consultants by calling 0808 178 3055 or request a call back. They’ll answer your initial questions and connect you with specialist equity release advisers who can find you find the UK’s best equity release deals.

What are the main types of equity release?

There are two main types of equity release scheme. If you’re looking for a way to unlock tax-free cash from the value in your home, equity release of either type could be the solution.

The most popular type of equity release is a lifetime mortgage. With a lifetime mortgage, you borrow money through a loan secured against your home. You then continue to own the property and live there unless you decide to move.

The main options are a lump sum lifetime mortgage where you release a one-off payment, or a drawdown lifetime mortgage where you access the loan in instalments. You don’t need to make any repayments or interest payments. That’s because the loan plus interest are typically repaid through the sale of the property when you pass away or permanently move into residential long-term care. Any money left over from the sale of the house will be available as an inheritance to your beneficiaries.

You can choose to pay off some of the loan without incurring early repayment charges. Each lender will have their own criteria for this. You may also be eligible for an interest-only lifetime mortgage that lets you make payments to prevent or reduce the interest building up.

A much less common type of equity release is a home reversion plan. This is where you sell all or a proportion of your home in exchange for tax-free cash and continue to live there rent-free until you pass away or move into long-term care. The information below refers to lifetime mortgages as this is the most common form of equity release: please visit our home reversion page for more information about this alternative type of equity release.

Am I eligible for equity release?

Lending criteria for lifetime mortgages will be different for each lender, but here are some examples of typical criteria as a guide:

  • You will need to be aged 55 or over and a UK resident.
  • When a couple applies for a lifetime mortgage, the youngest applicant on the deeds of the property must be 55 or above.
  • You must own your own home in the UK, and it should typically have a value of £70,000 or more.

Read more: Am I eligible for equity release?

Am I Eligible for Equity Release?

Simply select your property type to find out

How much can I borrow with a lifetime mortgage?

The main factors that influence how much you can borrow are your age, where you live, the value and amount of equity in your home, and the type of lifetime mortgage you choose. Your health and lifestyle may also be relevant, as some lenders let you borrow more through an enhanced lifetime mortgage if you are living with certain conditions or lifestyle factors.

The older you are, the more you can borrow with equity release. The maximum release available to older borrowers is typically up to around 50% of the property’s value, with a minimum release level of £10,000. 

As a guide to how much people release on a property, equity release customers choosing a lump sum lifetime mortgage release an average of £110,969, according to the Equity Release Council’s lending figures for Q2 2024.

To find out how much you could borrow, check here or talk to one of our friendly consultants by calling 0808 178 3055 or request a call back. They’ll answer your initial questions and connect you with specialist equity release advisers who can get quotes from the UK’s leading equity release providers – including special deals not available elsewhere.

Read more: How much equity can I release?

How is equity release paid back?

A lifetime mortgage is usually paid back when you (or the second person in a joint plan) pass away or move into residential long-term care. It may be possible for your beneficiaries to pay back the loan from your estate instead of selling the property, such as from a life insurance policy.

It can of course take time to settle someone’s financial affairs, so the equity release provider won’t expect to be paid back immediately. They may give the people handling your affairs up to a year to sell the property and pay back the loan, although interest will continue to build up on the loan in the meantime.

Can you pay back equity release loans early?

Life doesn’t always go as planned of course, so how do you pay back equity release if your financial circumstances change? For example, what happens if you come into an unexpected windfall and can afford to repay the loan? Thankfully, a lifetime mortgage is a form of equity release that you can pay back before you pass away or move into long-term care if you wish.

Equity release providers all give you this option, although it is likely that there will be an early repayment charge – much the same as with regular residential mortgages. These charges differ from lender to lender, and some waive the charge altogether in some circumstances.

We would be happy to arrange advice on this matter for you. If you are likely to want to pay back a lifetime mortgage early, let our selected advisers know and they will search for plans from leading providers with this in mind. In any case, they will explain the early repayment charges for any plan they recommend.

What types of property can I release equity from?

The criteria that lenders have when it comes to property types mean that equity release is possible for millions of homeowners over 55. Typical criteria includes that the property is in the UK, is worth around £70,000 or more, and is your main residence. However, you may be eligible for innovative buy-to-let equity release or second home equity release schemes depending on the circumstances

When it comes to property types, lenders may have standard criteria for houses and bungalows, with special criteria for other property types such as flats and maisonettes. For leasehold properties the lender will need the remaining lease to be quite long, but some plans will let you use some of the cash release to extend the lease to meet the lender’s criteria.

Read more: How much equity can I release?

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Apply for your no-obligation equity release quote

Find out if you qualify for equity release and how much you could borrow. Just click ‘Get started’ or call us on 0808 178 3055 and one of our team will be delighted to help arrange a free consultation and quote*.

How do equity release schemes work for couples?

Equity release is available for two people as well as a single applicant. In the case of a joint lifetime mortgage, the plan ends and the property is sold to repay the loan when the second person passes away or moves into permanent residential long-term care.

Another scenario is that one of the couple passes away or moves into long-term care, and the other person no longer wishes to stay in the property. Lifetime mortgage lenders recognise this, and some include the option for the plan to end with no early repayment charge in such circumstances.

How much does equity release cost?

Looking into equity release through Equity Release Wise doesn’t cost anything. Your initial advice, information and quotes are all free and without obligation. Only if you choose to proceed and your case completes will you pay an advice fee to your adviser.

Lenders will also charge equity release set up costs and other fees. Each lender has its own policy of which of these charges they make. For example, some lenders don’t charge a valuation fee. Our selected advisers can advise you on which charges apply to each of the plans they present to you.

You will require the services of a solicitor, so the overall cost of equity release will also include their fees and legal fees they pay on your behalf. Your adviser can connect you with solicitors experienced in equity release transactions and they will give you a fees breakdown to consider before you instruct them to act for you.

What’s the equity release application process?

If you’re thinking about unlocking some of your property wealth then you may be wondering what to expect as you progress through the equity release process. The process is not too dissimilar to that of a conventional mortgage. For example, during the equity release application process your adviser will recommend a lifetime mortgage product, you will appoint a solicitor and your home will be valued before receiving your offer.

Here is a summary of the equity release process, so you know what to expect:

Step 1 – Initial enquiry. You can use our free equity release calculator to get an initial estimate of what you could release, or contact us to request a free*, no-obligation initial appointment with one of our carefully selected equity release advisers.

Step 2 – First appointment. During your first appointment with an adviser, they will check your eligibility for a plan, explain the equity release process, understand your needs and circumstances and discuss any alternatives that might be financially better for you.

Step 3 – Second appointment. You will be provided with a full report recommending the best option for your personal circumstances. Your adviser will also explain which plans suit your needs most, how much you could release from your home and the costs involved. They will also provide information on how your tax position and entitlement to state benefits may be affected where applicable. If you wish to proceed, your adviser will take you through the application form before submitting it to your chosen provider.

Step 4 – Choose a solicitor. At this stage in the equity release application process, you will need to appoint a solicitor who specialises in equity release. Our selected advisers can recommend specialist equity release solicitors to you, to save you time having to search for yourself.

Step 5 – Surveyor report. Your chosen provider will instruct a surveyor to attend and value your home. This valuation will confirm that your property is eligible and determine exactly how much you can release.

Step 6 – Offer made. You will next receive an offer from your provider as confirmation that everything has been approved. This will be sent to your solicitor who will then take you through the process of accepting the offer.

Step 7 – Completion. Your provider will release the money to your solicitor, who will arrange for the funds to be transferred into your bank account. Completion is typically 6–8 weeks after you submit your application with your adviser. If you have a mortgage or other secured loans on your home, these will be settled from your initial lump sum.

Find out what’s possible for you: get a free quote or talk to one of our friendly consultants by calling 0808 178 3055 or request a call back.

Is equity release safe?

The equity release industry is regulated by the Financial Conduct Authority (FCA). Its work includes publishing a set of standards for anyone advising on equity release, or providing equity release products including lifetime mortgages. These are covered in the FCA Handbook and include the need for advisers to ensure that any equity release transaction is suitable for the customer.

The FCA works alongside the Prudential Regulation Authority (PRA), which regulates around 1,500 companies including banks and building societies.

Another layer of consumer protection is provided by the Equity Release Council. Because our selected advisers are members, they have signed up to a set of standards which include giving you complete information about plans they recommend, including the costs involved, tax implications, what will happen if you move to another property, and how changes in property values may affect your plan.

Finally, it is worth mentioning that you will need to use the services of a solicitor who specialises in equity release. 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?

Important points to consider

Pros

  • Unlock tax-free cash from your home without having to sell or move.
  • The right to move in the future (subject to terms and conditions).
  • No mandatory monthly loan repayments or interest payments.
  • Optional loan/interest payments to reduce the cost of the loan.
  • You or your family will never owe more than your home is worth.
  • Cons

  • Reduces the value of your estate and the inheritance you leave.
  • Reduces the amount of property equity available to fund residential long-term care.
  • Can limit your options for raising money through other means in the future.
  • Subject to compound interest and the amount owed will grow quickly.
  • Can impact your eligibility for means-tested benefits.
  • Please also see our guide to the pros and cons of equity release or guide to home reversion (the other, less common type), and ask for a personalised illustration to fully understand features and risks.

    How much tax-free cash could you release?

    Select your age range to find out

    Did you know?

    You will need to be a homeowner to qualify for equity release, but you don’t need to have paid off all your mortgage. In fact, equity release is a way you could potentially pay off your mortgage AND stay in your home for life.

    How can we help?

    To find out more about equity release or arrange a consultation with an adviser, please call or request a call back and we’ll be happy to help further.

    Let’s talk

    Let us help with your questions or arrange a quote.

    Call 0808 178 3055

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    Are you eligible?

    Find out how much tax-free cash you could release.

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    Types of lifetime mortgage

    With many lenders and hundreds of lifetime mortgage plans to choose from, you can choose either a lump sum lifetime mortgage where you release a one-off payment, or a drawdown lifetime mortgage where you access the loan in instalments. If you are living with certain medical or lifestyle factors, you may be eligible for an enhanced lifetime mortgage that lets you release more cash or benefit from lower interest rates.

    Like most lending, interest is charged on the amount you borrow. Typically, you make no monthly payments and the interest is added to the loan amount each month on a compound basis. However, you may be eligible for an interest-only lifetime mortgage that lets you make payments to prevent the interest from building up.

    Lifetime mortgage loans are usually secured against your main residence, although some lenders offer equity release on second homes or buy-to-let properties.

    All the lifetime mortgage providers we deal with support the Equity Release Council’s no-negative equity guarantee. This protects your beneficiaries from paying any money if the value of your property doesn’t cover the full amount of the loan and interest.

    Read more about your lifetime mortgage options through the links below, or call 0808 178 3055 to talk about your situation with one of our selected advisers so that you can get the best solution for you.

    Product lump sum icon

    Lump sum lifetime mortgage

    Access a tax-free cash lump sum if you’re a homeowner aged 55 or over. You retain full ownership and can stay at home until you pass away or move into long-term care.

    Read more about lump sum lifetime mortgage plans
    Product drawdown icon

    Drawdown lifetime mortgage

    Instead of making a one-off cash withdrawal, you take an initial cash sum and additional funds as and when you need them. This helps to reduce the total interest you pay.

    Learn more about drawdown lifetime mortgage plans
    Product interest only icon

    Interest-only lifetime mortgage

    A more cost-effective method of equity release where you make voluntary interest payments to reduce or prevent compound interest building up.

    Discover more about interest-only lifetime mortgage plans
    Product enhanced icon

    Enhanced lifetime mortgage

    Certain health conditions or lifestyle factors could qualify you for higher cash releases or lower interest rates. A simple questionnaire is all that’s needed to check eligibility.

    Read more about enhanced lifetime mortgage plans
    Product second home icon

    Second home lifetime mortgage

    If you have a second home you may be able to secure a lifetime mortgage against it, or make your dream of a second home come true with a release from your main residence.

    If you have a second home you may be able to secure a lifetime mortgage against it, or make your dream of a second home come true with a release from your main residence.
    Product buy to let icon

    Buy-to-let lifetime mortgage

    These specialist plans could enable you to release equity from a buy-to-let property, or to use the wealth in your home to help you make a buy-to-let investment.

    Read more about buy to let lifetime mortgage plans

    Another, much less common form of equity release may be a more suitable alternative to a lifetime mortgage. A home reversion plan is a type of equity release where you sell all or part of your property at less than market value in return for a lump sum, a regular income, or both. You stay in your home as a tenant, paying no rent, until you pass away or move into long-term care.

    Five-star feedback from thousands of satisfied customers

    Making sure you receive a superb service and great equity release advice is a priority for us. That’s why we have carefully selected equity release specialists who consistently receive excellent customer feedback.

    mature man
    Mr Carter +

    “Very friendly and professional.”

    Excellent service. Staff very friendly and professional. Process took about 7 weeks which was very good. Any questions were answered quickly. Very happy with the service.

    mature woman
    Joyce Pullman +

    “I would recommend with no reservations.”

    Everything clearly explained and all questions answered. It seemed no trouble for them at all so I would recommend them with no reservations.

    mature man
    Mr Gates +

    “Nothing was too much trouble.”

    They kept me informed every step of the way on the status of my application, were always polite, professional and very very friendly. Nothing was too much trouble and they were always more than happy to answer any questions I asked.

    Plan review icon

    Already have equity release?
    You could switch for a better deal

    Now could be a good time to switch to a different equity release plan. You may be able to release more tax-free cash due to being older than when you took out your existing plan. An increase in your property’s value or being in poorer health could also qualify you for further cash. Interest rate changes may also save thousands over the lifetime of your plan.

    Why not arrange a free review* to find out if switching works for you?

    Learn more
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    Apply for your no-obligation equity release quote

    Find out if you qualify for equity release and how much you could borrow. Just click ‘Get started’ or call us on 0808 178 3055 and one of our team will be delighted to help arrange a free consultation and quote*.

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    1. Start your quote journey

    Simply click ‘Get started’ to begin your search for the best plan for your circumstances.

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    2. Tell us what you need

    Fill out some simple details about your situation so we can start to prepare your quote.

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    3. Compare your best deals

    You’ll get personalised quotes tailored to your unique circumstances and goals.

    Answering your questions

    Still unsure of a few things? We’ve got you covered with answers to some of our most frequently asked questions.

    • How long does it take to release equity from a house?

        Completion of an equity release plan is typically 6–8 weeks after you submit your application with your adviser. Each application is different of course, and sometimes things do go ahead much sooner or take longer. For example, applications that are more complicated may take longer, due to factors such as property valuation issues or leaseholders being involved. 

        If it’s especially important that your application completes as soon as possible, please mention this to our selected advisers and they will do everything possible to help.

    • Is equity release available in Scotland, Wales, Northern Ireland and England?

        Yes, you can release equity from a house in any country in the UK. When you contact us, we will connect you with our carefully selected advisers who can help you, no matter where in the UK you live.

    • What are the initial costs of equity release?

        Just as with a normal residential mortgage, you should be aware of costs involved in setting up an equity release plan. Your adviser will make sure you understand these in full before you decide whether to take out a plan, but below is a summary.

        Your lender will typically charge valuation, arrangement and completion fees, with further fees payable to the solicitor who acts for you. Some of these fees can be paid from the money you borrow, so you may not have to worry about finding them from your existing savings.

        Our selected advisers naturally charge an advice fee – but remember that any initial advice or information you receive from them is completely free and without obligation. You only pay them a fee if you apply AND your case completes.

        Once a plan is taken out, there aren’t normally any fees. One exception is an early repayment charge that some lenders request if some or all of your lifetime mortgage is paid off before you pass away or move into long-term care.

    • Can I pay off equity release early?

        For most people, an important reason for taking out a lifetime mortgage is that they won’t have to repay the loan until the home is sold when they pass away or move into long-term care. However, equity release providers recognise that people’s circumstances may change, and that you may choose or need to pay back the loan earlier.

        Early repayment charges will often apply, and these will be explained to you when you receive advice on lifetime mortgages. However, charges are often waived in certain circumstances and our selected advisers can explain the relevant terms and conditions of each lifetime mortgage product they present to you.

    • What are the potential risks and disadvantages of equity release?

        As with any financial decision, there are of course pros and cons of equity release. Although it has helped thousands of people to access tax-free cash in or close to retirement, it’s important to fully understand the advantages and disadvantages of equity release before deciding if it’s right for you; Here are some potential risks you need to be aware of:

        • Lifetime mortgage rates are calculated daily and the interest is added to the amount you owe each month. The amount owed therefore increases and reduces any equity left in your home when the plan ends, unless you choose to make interest payments while the plan is running.
        • Taking equity out of your home will mean that the inheritance you leave to loved ones will reduce. Each time you take money from the plan, the level of possible inheritance will reduce. 
        • If you give some of the money you release to family as a gift, they may be liable to pay inheritance tax in the future.
        • You may have to pay an early repayment charge if you choose to pay back some of the loan early.
        • Borrowing money and building up your savings through a lifetime mortgage may affect your entitlement to some means-tested state benefits. During your appointment with one of our selected equity release advisers, they will help you establish whether your benefits could be affected.

        Equity Release Wise can connect you with a highly trained and knowledgeable adviser who will take the time to explain everything to you, so you can be absolutely sure about your decision.

    • How much equity release can I have?

        A number of things will affect how much equity release cash you can have. Three of the most important ones are:

        • Your property’s value – the more it’s worth, the more you can release.
        • Your age – the older you are, the more you can release, with a minimum age of 55.
        • Your health and lifestyle – you may be able to release more cash with an enhanced lifetime mortgage if you have health issues or make lifestyle choices such as drinking or smoking. 

        Please see our guide to ‘How much equity can I release?’ for more information about these and other factors that affect your maximum available release. 

        We also invite you to contact us so we can arrange an appointment with one of our selected advisers. They will ask about you and your property, and then search across leading providers to provide you with quotations for the best deals available.

    • Can I use the equity in my house as a deposit on another property?

        You can use the money you release from an equity release plan for just about any lawful means, once you have paid off any outstanding mortgage on your property. This includes releasing money to use as a deposit on another property.

        It could be a suitable solution if you don’t have enough money to fund the purchase of another property. For example, you may want to give the money you release to children or grandchildren for them to use as a deposit to help them get on the property ladder. 

        Alternatively, you may be able to release money from your home in order to help fund the purchase of another property yourself. Some lenders offer second home equity release or buy-to-let equity release with this in mind.

        Remember that unless you make interest payments, interest on a lifetime mortgage will roll-up on a compound basis. This would affect the amount of money left for you or your loved ones after your house is sold when you pass away or move into long-term care. There may also be inheritance tax implications of making a financial gift to someone.

        It’s a decision to take carefully, so please weigh up the pros and cons of using equity release to part-fund another property purchase. If you ask for assistance through Equity Release Wise, our selected advisers will of course provide information on the potential risks of equity release as a way to raise a deposit on another property. 

    • What is an equity release mortgage?

        Equity release plans are a popular way for homeowners to unlock some of the tax-free money tied up in the value of their home, without having to move. 

        The most popular type of equity release is a form of mortgage known as a lifetime mortgage. Available to over-55s, you can unlock the money you need whilst continuing to own 100% of your home. You’ll have the right to remain in your home as long as you wish, with the loan typically repaid through the sale of the property when you pass away or move into long-term care.

        You have the option of receiving your money as a single lump sum payment, or as a regular income that you take as and when needed. There are no mandatory monthly payments to make. However, if you choose, you can make regular payments to prevent or reduce the interest building up on a lifetime mortgage. 

    • Is a lifetime mortgage the same as equity release?

        Some of the terminology around equity release can be a little confusing. However, when someone refers to ‘equity release’ they are most likely talking about a lifetime mortgage as this is the most popular type of equity release. There is an alternative type of equity release known as a home reversion scheme.

        The underlying principle of both types is the same. An equity release provider lets you release tax-free cash from your home. This is typically paid back through the sale of your home when you pass away or move into long-term care. 

        However, there are significant differences between the two forms of equity release that we explain here at EquityReleaseWise.co.uk. Our selected advisers can also provide further information and advice.

    Still have questions?

    We hope this information has been useful. To find out more or arrange a consultation with an adviser, please call or request a call back and we’ll be happy to help further.

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    + Client testimonials refer to the service provided by our selected equity release advisers. We have changed the clients’ names and certain identifying information to protect their privacy.

    Please note that equity release will involve a home reversion or a lifetime mortgage, which is secured against your property and will reduce the value of your estate and impact funding long-term care. To fully understand the features and risks, ask for a personalised illustration. Equity release requires paying off any existing mortgage. Any money released, plus accrued interest would be repaid upon death, or moving into long term care.