Equity release

What is equity release?

Housing equity is the market value of your home minus any mortgage or debt. Equity release plans enable you to use that money.

There are two types of equity release:

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

There are usually eligibility criteria and conditions. 

Equity release schemes are regulated by the Financial Conduct Authority and there are rules about what providers must tell you about an equity release scheme. You should make sure that you take out a scheme with an authorised provider. Contact the Equity Release Council for details of member organisations. They have stricter rules than the basic regulatory requirements.

Remember to ask the provider what their fees are, what type of equity release products they can offer and if there are any other costs, such as set-up fees.

Advantages

You could use the money 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, as a regular payment or as a combination of both.

Disadvantages

Equity release schemes aren’t suitable for everyone.  

• With a lifetime mortgage, the interest is added to the amount you owe. You'll have to pay interest on the interest and the total debt owed on your home can quickly grow.
• With a home reversion scheme, you will get less than the full market value of your home.
• You'll still have to maintain your home even if you no longer own it.
• A lump sum is considered as capital and a regular payment is considered as income. The extra money could have an impact on tax and inheritance, or affect your entitlement to means-tested benefits.

It’s important to get advice from an Independent Financial Adviser (IFA) who specialises in equity release. You can search for an IFA through the Society of Later Life Advisers or Unbiased.

Questions to consider

It's important to consider all the implications, not just now but in the future. There may be other ways to raise money before you sign up to an equity release plan.

• Are you claiming all the benefits you're entitled to?
• Have you thought about downsizing?
• Do you have any other investments or assets?
• Have you asked your local authority or Home Improvement Agency about help to adapt your home?

Contact our Helpline to arrange a benefits check or try our benefits calculator.

If you’re struggling with debt, there may be other solutions. Try talking to an adviser at National Debtline or Citizens Advice.