Frequently Asked Questions !
General
What is equity release? Equity release allows homeowners aged typically 55+ to access the tax-free cash tied up in their property value.
What are the different types of equity release? The two main types are lifetime mortgages (you retain ownership) and home reversion plans (you sell part or all of your home).
Is equity release right for me? Consider your financial situation, future plans, and impact on inheritance. Always seek advice from a qualified whole-of-market broker. As opposed to a tied broker who is tied to one lender, as the name suggests, a whole-of-market broker will be able to offer products from the entire market.
What are the pros and cons of equity release?
Pros: Access cash, stay in your home, improve lifestyle.
Cons: Reduces inheritance, debt accumulates over time, fees involved, funds available for long-term care will be reduced. This is not an exhaustive list.
How much equity can I release? This depends on your age, property value, and lender criteria. Usually the older you (youngest borrower if a joint application) are , the higher the amount you can borrow.
Will I still own my home with equity release? Yes, with a lifetime mortgage. With a home reversion plan, it depends on the proportion you have sold. If you have sold 100% of the property you do not own your property but you will be able to continue to live in your property until you permanently move out.
Can I downsize and use the equity instead? Yes, this should always be considered amongst other alternatives such as a regular mortgage, but downsizing can be stressful and equity release allows you to stay in your familiar home.
Is equity release regulated? Yes, by the Financial Conduct Authority (FCA) for consumer protection.
Eligibility
What is the minimum age for equity release? Typically 55, though some providers may have a higher age limit. Usually there is no maximum age limit. The most important things with older ages is the client's mental capacity and vulnerability concerns. During the advice process, the advisor and the equity release solicitor will usually assess this to ensure client safety.
Can I get equity release if I have an existing mortgage? Yes, you will be required to settle the existing mortgage on completion (or prior to completion) of the equity release application. Often the equity release can be used to pay it off.
Can I apply for equity release with a partner? Yes, joint applications are common.If you own your property jointly , you must make the application jointly. Its important to bear in mind if you own the property just in your name and you have a spouse who lives with you and you apply in your sole name, should you pass away or go into long term care, your spouse will have to move out of the property usually within 12 months. So its always recommended to consider applying jointly where possible. But it may always not be the right solution as individual situations may vary.
What if I have bad credit? This is usually not a problem. The credit checks if any are not so stringent and bad credit does not necessarily stop you from taking out equity release. If you have any outstanding debt management plan , the lender will usually request you to settle them prior to or upon completion of an equity release application. The lender would like to know how you got into debt and whether you are likely to get into debt problems in the future. This is because one of the conditions of equity release is if you become bankrupt, the equity release lender can repossess your property. Therefore if you are a gambling addict who got into debt due to your addiction you might struggle to obtain equity release unless you can show clear evidence that you have addressed the problem and no longer an addict.
Can I get equity release on a leasehold property? Yes, however the lender will require a long remaining term on the lease, usually over 100 -120 years. Your age also becomes a factor if your lease is short. i.e 80 to 90 years. With leasehold properties there are other concerns too. The ground rent and service charge should not be above a certain level the lender recommends. Also if the ground rent increases or doubles in a certain number of years, the lender might have concerns. An advisor usually will check with the lenders and confirm this to you.
What about shared ownership properties? Equity release is usually not possible to buy out the remaining ownership share.
Products
What is a lifetime mortgage? You borrow money against your home’s value with interest accumulating over time. You don't make regular repayments, but the interest is rolled up into the loan.
What are the different types of lifetime mortgages? There are drawdown lifetime mortgages (access cash in stages) and lump sum lifetime mortgages (one large amount upfront).
What is a fixed interest rate lifetime mortgage? The interest rate is fixed for a set term, offering predictability.Almost all the lifetime mortgages in the market today offer lifetime fixed interest rates.
What is a variable interest rate lifetime mortgage? The interest rate can fluctuate, potentially leading to higher costs. These however are no longer available for new customers as they have been withdrawn by the lenders.
What is a drawdown lifetime mortgage? You access the cash in portions over time, giving you flexibility. Just like how you would withdraw money from an overdraft facility. It does take slightly longer (up to 2 weeks usually) than an overdraft as you need to request the funds from the lender.
What is a lump sum lifetime mortgage? You receive a single large payment upfront.
What is a home reversion plan? You sell part or all of your home in exchange for a lump sum, with the provider owning that share and you retaining the right to live there for life.
Costs
What are the fees involved in equity release? These can include advisor fee, valuation fees, solicitor fees, product fees, and an exit fee when the loan is repaid.
How much interest will I pay on a lifetime mortgage? Interest rates on lifetime mortgages tend to be higher than standard mortgages due to the nature of the loan.
Are there any tax implications of equity release? The cash released is typically tax-free, but financial advice is recommended.
What happens to my inheritance with equity release? The less equity you leave behind, the less inheritance your beneficiaries will receive.
Repayment
How do I repay a lifetime mortgage? The loan is typically repaid when you die or move into long-term care, with the property sold.
Is there a no negative equity guarantee? Reputable providers offer this, ensuring the debt won't exceed the property value.
Can I repay a lifetime mortgage early? Yes, but there may be early repayment charges.
What happens if I move into long-term care? The house may need to be sold to repay the loan, though some plans offer options to stay.
What happens if I die before my partner in a joint lifetime mortgage? The surviving partner can usually stay in the property.
How does equity release impact my benefits? It may affect means-tested benefits, so professional advice from a benefits specialist is crucial.
Can I still make improvements to my home under equity release? Yes, but you'll need the lender's approval for substantial work.
Can I use equity release for anything? Generally yes, but restrictions may apply (e.g., not for business purposes).
Can I gift some of the released money to my children? Yes, it's your money to use as you wish as long as its not for business or for a risky or unethical venture
What if I need more money later? Some lifetime mortgages offer further advance options, subject to eligibility.
Can I change my mind after taking out equity release? Usually you cannot change your mind after you have received the funds. However between you submitting your application to the completion there is usually about 6-8 week time period to process the application. You can withdraw your application at any point during this time with no penalty and usually at no cost.
Will I have to move out of my home if I release equity? No you can live in your property until you permanently vacate your property due to death or needing long term care.
Can I still leave inheritance to my family? Yes, after the loan is paid off upon your death or going into long term care, whatever is remaining goes to your estate. If you would like a guarantee , there are some lenders who offer inheritance guarantee. However this may reduce the amount you can borrow.
If I need equity release, is now the right time? Market conditions can affect interest rates, so professional advice is important for timing.
The Process
Where do I find reputable equity release providers? Start with the Equity Release Council (https://www.equityreleasecouncil.com/). It's essential to use regulated companies.
How long does the equity release process take? It can take several weeks, depending on the complexity of your situation. As a rule of thumb, its 6-8 weeks.
Do I need to involve my family in the decision? While not mandatory, discussing it with family who might be affected is sensible to avoid future disputes.
Is independent financial advice essential? Yes. Equity release has long-term implications, so expert advice is crucial.
What questions should I ask a financial advisor? Ask about fees, risks, alternatives, impact on benefits, and inheritance. Be clear about your goals. You must go through the "illustration" you will receive from you advisor thoroughly and clarify any areas of concern prior to submitting an application.
Alternatives
What are some alternatives to equity release? Options include downsizing, getting a traditional mortgage/loan (if eligible), or support from family, selling your house and renting, taking a lodger, taking out a short term loan, using your savings or investments if you have any.
Is equity release always the best option? No, it depends entirely on your needs and circumstances. This is why advice is important.
Miscellaneous
Can equity release affect my credit score? Usually not, as there are no regular payments to default on.
Can my equity release plan be transferred if I move home? Usually the plans are portable to suitable properties. Check the terms of the specific plan. Your ability to move will depend on the amount of equity available at the time you expect to move.
Where can I find more information and support about equity release?
These organizations are helpful sources:
The Equity Release Council: https://www.equityreleasecouncil.com/
MoneyHelper (government-backed advice): https://www.moneyhelper.org.uk/en