Equity release

What is equity release?

Housing equity is how much your home is worth if it was sold today (the market value), minus any mortgage or debt. Equity release allows you to use that money by turning it into cash.

There are two types of equity release.

• Lifetime mortgage - lets you borrow money against the value of your home. This is paid back when the property is sold, usually after you die or move into long-term care.
• Home reversion scheme - buys all or part of your home, for a cash payment, while you continue to live there rent-free.

For both types, you can protect some of the value of your home as inheritance for your family. This is known as ring-fencing.

There are usually eligibility criteria and conditions to meet before you can take out an equity release product.

Pros and cons of equity release

Before releasing equity from your home, it’s important to consider all the implications – not just now but in the future too.

Advantages

Equity release puts tax-free money in your hand. You can spend it in any way you’d like – for example, you could use it to:

• pay for repairs, improvements or adaptations to your home
• pay for care or support services
• supplement your income, giving you money to live on
• pay off outstanding debts.

You can receive the money as a lump sum, a regular payment or a combination of both.

If you don’t want to move or downsize, equity release allows you to stay in your house until you die or permanently move into a care home.

Disadvantages

Equity release options aren’t suitable for everyone. Disadvantages to consider include:

• lifetime mortgages can be more expensive than a standard mortgage - for many lifetime mortgages, the interest is added onto the amount you owe. You'll have to pay interest on the interest, so the total debt owed on your home can quickly grow
• with a home reversion scheme, you will usually get less than the full market value of your home
• you'll still have to maintain and insure your home, even if you no longer own it
• tax and inheritance, or some benefits may be affected - a lump sum is considered as capital and a regular payment is considered as income. This may affect tax and inheritance, or your entitlement to means-tested benefits. Disability benefits, such as Attendance Allowance, are not affected.

Before deciding, it’s best to get advice from an independent financial adviser (IFA) who specialises in equity release. They will consider which equity release product best suits you, or if alternative options would be better. They can also advise you on how it might affect the inheritance you want to leave your family, as well as any benefits you’re getting now or may become entitled to in the future.

You can search for an IFA through the Society of Later Life Advisers or Unbiased.

Choosing a provider

Equity release products are regulated by the Financial Conduct Authority (FCA). There are rules about what providers must tell you about equity release.

Make sure you take out an equity release product with an authorised provider. They should be a member of the Equity Release Council – you can check on their website for a list of member organisations. They have stricter rules than the basic regulation requirements.

When choosing a provider, remember to ask:

• what their fees are
• what type of equity release products they can offer
• if their equity release products are from the whole range offered on the market, or from a limited range of providers
• if there are any other costs, such as set-up fees
• whether they are a member of the Equity Release Council and are authorised by the FCA.

Other options to consider

Equity release is one option to release cash. However, there may be other ways to raise money that might work better for you. You could try:

• checking if you’re claiming all the benefits you're entitled to - arrange a benefits check by calling our Helpline on 0800 319 6789, or try our benefits calculator
• downsizing to a smaller home – read our guide Choosing where to live for more information
• checking if your local council or Home Improvement Agency can help to adapt your home – see our home adaptations webpages
• speaking to an IFA about your options with any other investments or assets you may have.

If you’re struggling with debt, there may be other solutions. Visit our webpage Help if you're in debt for more information.