Equity release

If you’re a homeowner aged 55 and over, equity release is a way to raise money from your home without having to move. There are risks, so you should consider all your options and get independent financial advice before deciding if it’s right for you.

What is equity release?

Housing equity is the part of your home that you own. If you have a mortgage, it’s your home’s current value (what it’s worth on the market today), minus any mortgage or debt. Equity release allows you to use that money however you'd like.

There are two main types of equity release: 

  • a 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 a care home
  • a home reversion scheme buys all or part of your home for a cash payment or regular income, while you continue to live there rent free.

For both types, you can protect some of the value of your home as inheritance. 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. Your circumstances could change.

Advantages

Equity release gives you tax-free money to spend 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
  • increase your income, giving you extra 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 do not want to move or downsize, equity release allows you to stay in your home until you die or move into a care home.

You may benefit if the value of your home increases.

Disadvantages

Equity release options are not suitable for everyone. Bear in mind that:

  • lifetime mortgages can be more expensive than a standard mortgage – the interest is often added to 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 will have to pay application, legal and other fees, and these can be high
  • you'll still have to maintain and insure your home, even if you no longer own it.

A lump sum is considered as capital and a regular payment is considered as income. This may affect:

  • the amount of tax you pay
  • the value of your estate and how much you can leave in your will
  • your entitlement to means-tested benefits, both now and in the future. These benefits include Pension Credit, Universal Credit and Council Tax Reduction
  • how much you might have to pay if you need care.

Before deciding, you should 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 other options would be better. 

An IFA can also tell you about the effect on any inheritance you want to leave and your entitlement to benefits.

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 find a list of member organisations on their website. 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 authorised by the FCA.

Other options to consider

Equity release is one way to raise money, but there may be better options. You could:

  • make sure you’re claiming all the benefits you're entitled to. Contact our Helpline for a free benefits check or try our benefits calculator
  • consider downsizing to a smaller home – read our guide Choosing where to live for more information
  • find out if your local council or Home Improvement Agency can help to adapt your home – see our page on home adaptations
  • speak 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. Our webpage Help if you're in debt has more information.

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Next steps

You can find more information about equity release on the MoneyHelper website.

Search for an independent financial adviser at the Society of Later Life Advisers or Unbiased.

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