How does equity release work?

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?

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 maximum release available typically ranges from around 20% to 60% 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 borrowed around £124,000 on average in 2021 according to market statistics.

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?

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?

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.

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.