Equity release – what are the options?

As retirement approaches, you may be considering accessing the value in your home. If downsizing isn’t an option and you are aged 55 or over, equity release could prove to be the right solution for you. 

What is equity release?

Equity release is a type of loan that is only available to homeowners over the age of 55. It is secured against the value of the borrower’s property and paid off by selling the property when they die or go into long-term care. 

Equity release has grown in popularity in recent years as more older homeowners seek to unlock the value in their properties. With interest rates remaining low, it’s proving to be an increasingly attractive option for many. 

How does equity release work?

There are two types of equity release: lifetime mortgages and home reversion schemes. 

  1. Lifetime mortgages

This is a type of mortgage that allows you to borrow money against the value of your home, just like a traditional mortgage, but you don’t have to make any repayments (although some products now allow you to do so). A percentage of your property’s value is released as a lump sum and interest builds up on the amount borrowed. On your death or when you move into care, the loan and any accrued interest will be paid off from the value of your home, reducing what your heirs receive (although it may also reduce any Inheritance Tax due on your estate). 

  1. Home reversion 

Home reversion involves selling all or a proportion of your home, in return for a tax-free lump sum, regular income or both, allowing you to stay in your property, rent-free, generally for the rest of your life. As home reversion plans are not loans, no interest accrues, but if the property rises in value, you will only benefit from growth in the proportion of the property you still own.

What other options are there? 

Equity release isn’t right for everyone. It can reduce your entitlement to means-tested state benefits and reduce the value of your estate, meaning you leave less behind for your loved ones.

Other options, such as retirement interest-only (ROI) mortgages, downsizing or taking an income from savings or investments, may be more suitable. 

ROI mortgages are only available to those who own their home outright or have an existing interest-only mortgage that they are looking to remortgage. The lender will undertake affordability checks to ensure you can afford the interest repayments, but this option means only the capital and not accrued interest will be owed. 

Meanwhile, downsizing can provide older homeowners with a cash lump sum attained through selling their current property and purchasing a cheaper one. 

Confused? Don’t worry – our expert advisers can help

Releasing equity from your home is a big decision and it’s important seek professional financial advice before proceeding with an equity-release plan. Our expert advisers can assess your personal circumstances and help you to decide which option (whether equity release or another avenue) will best suit you. Just get in touch. 

Equity release may not be right for everyone. It may affect your entitlement to state

benefits and will reduce the value of your estate. Tax advice with no investment element is not regulated by the Financial Conduct Authority.