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 a share 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.
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 both.
Equity release schemes aren’t suitable for everyone. Disadvantages include:
- with a lifetime mortgage, the interest is added to the amount you owe. You will have to pay interest on the interest and that can quickly grow
- you will get less than the full value of your home with a home reversion scheme
- the extra money could 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.
Questions to consider
There may be other ways to raise money before you sign up to an equity release plan. It is important to consider all the implications, not just now but in the future.
- Are you claiming all the benefits you are 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?