Equity release can help some homeowners access money tied up in their home without moving. This guide focuses on lifetime mortgages, where you borrow against your property while keeping ownership of it.
However, interest can build over time and reduce the equity left in your home. So before you decide, compare the costs, risks and alternatives.
Before releasing equity from your home
OWNERSHIP
Stay in your home
With a lifetime mortgage, you borrow against your property while remaining the owner, subject to the mortgage terms.
ACCESS
Choose how to take the money
Depending on the plan, you may take a lump sum or use drawdown to release smaller amounts over time.
INTEREST
Understand how the balance can grow
If you do not pay the interest, the provider can add it to the loan and charge interest on the growing balance.
LONG-TERM IMPACT
Consider what could be left later
Equity release can reduce the value of your estate and may affect means-tested benefits.
Estimate what you could release
Use our calculator for a quick age-and-property-value estimate.
What is equity release in the UK?
First, it helps to understand what equity release actually means. Equity release lets you access some of the value tied up in your home. In this guide, we focus on lifetime mortgages, where you borrow against your property while keeping ownership of it.
You can usually take the money as a lump sum or, where available, use drawdown to release smaller amounts over time. With drawdown, you normally only start paying interest on each amount once you release it.
A simple equity example
| Estimated home value | £350,000 |
| Existing mortgage | − £50,000 |
| Estimated home equity | £300,000 |
Having £300,000 of equity does not mean you could release the full amount. What may be available depends on your age, property, existing borrowing and the provider’s criteria.
How does equity release work?
Next, look at how the borrowing works. A lifetime mortgage has three main parts: how you borrow against your home, how you take the money and whether you make payments, and how the loan is eventually repaid.
Borrow against your home
A lifetime mortgage uses your property as security for the loan. You remain the owner, subject to the mortgage terms.
Choose how the money and payments work
Depending on the plan, you may take a lump sum or use drawdown. Monthly payments are not always required, although some plans allow you to pay interest or capital to help control the balance.
Repay when the plan ends
When the plan ends, the sale proceeds normally repay the loan and any interest owed. Any unpaid interest forms part of the amount that must be repaid.
How much could you release?
How much you can release then depends on several factors. Providers set their own lending limits, so how much you can release depends on your age, property, existing borrowing and circumstances. A calculator can give an estimate, but it cannot confirm eligibility, rates or the amount a provider may ultimately offer.
Applicant age
Providers often base the amount available on the age of the youngest applicant.
Property value and suitability
Providers assess the property’s value, type, location and condition to check whether it meets their criteria.
Existing borrowing
Providers take any existing mortgage or other secured borrowing into account, and you will usually need to repay it when the lifetime mortgage completes.
Provider criteria
Providers set their own minimum property values, maximum loan percentages and other eligibility rules.
Health and lifestyle
Some providers may consider health or lifestyle information when assessing enhanced terms.
As a result, two homeowners with similar properties may not be able to release the same amount.
Use the equity release calculator →
How interest can build over time
Most importantly, understand what happens if you do not pay the interest. A lifetime mortgage can add unpaid interest to the loan. The lender then charges interest on both the original borrowing and interest already added, so the balance can grow through compound interest.
How a £50,000 loan could grow
When
Illustrative balance
Today
£50,000
After five years
About £66,900
After ten years
About £89,500
Around £39,500 of interest would be added over ten years in this example.
This illustration assumes a fixed rate of 6% a year and no payments, fees or further withdrawals. Your rate and balance may differ.
However, making permitted interest or capital payments can slow the balance’s growth. Drawdown may also reduce interest costs because you only start paying interest on money once you release it.
Benefits and risks of equity release
Before you decide, weigh the potential benefits against the risks. Equity release can give you more flexibility, but it can also reduce the equity left in your home.
POTENTIAL BENEFITS
Stay in your home
A lifetime mortgage lets you access equity while you continue to own and live in your home, subject to the mortgage terms.
Choose how to access the money
Depending on the plan, you may take a lump sum or use drawdown to release smaller amounts over time.
Monthly payments may be optional
Some lifetime mortgages do not require monthly payments, while others allow voluntary interest or capital payments.
IMPORTANT RISKS
Leave less equity behind
The loan and any unpaid interest reduce the equity left in your home, which can reduce the amount available for inheritance.
Owe more over time
If you leave the interest unpaid, the provider adds it to the balance and compound interest can increase the amount you owe over time.
Affect benefits and future choices
Equity release can affect means-tested benefits, reduce equity available for later needs and involve early repayment charges.
PROTECTION
Plans that meet the Equity Release Council’s product standards include a no negative equity guarantee. If you meet the mortgage terms, you or your estate will not owe more than the home’s sale value after selling costs.
You must maintain and insure your home and follow the lender’s terms. The FCA says advice should consider your needs and suitable alternatives.
Alternatives to equity release
Before you proceed, compare the alternatives. A lifetime mortgage is not the only way to achieve many of the same goals. Your adviser should compare suitable alternatives before recommending a lifetime mortgage.
Downsize your home
Moving to a less expensive property could release money without taking out another loan.
Consider another mortgage
A standard mortgage, remortgage or further advance may be possible if you meet the lender’s affordability and eligibility criteria.
Consider a retirement interest-only mortgage
You normally pay the interest each month. Later, the sale proceeds generally repay the original amount borrowed.
Use savings or other support
Savings, investments, family support or benefits you are entitled to may reduce how much you need to borrow.
How to release equity from your home
If equity release still looks suitable, the next step is to understand the process. Releasing equity through a lifetime mortgage involves regulated financial advice, provider checks and independent legal advice.
01
Review your needs and alternatives
Discuss what you want to achieve, your finances, longer-term plans and other options that may be suitable.
02
Receive your recommendation
Your adviser explains the recommendation, costs, risks and personalised illustration.
03
Apply and arrange the valuation
Your adviser submits the application, and the provider checks the property and supporting information.
04
Take independent legal advice
A solicitor explains the legal agreement and your obligations before you proceed.
05
Complete and receive the funds
Once the final checks and legal work are complete, the provider completes the mortgage and releases the agreed funds.
How Muttuo Mortgages can help
Our later-life mortgage advisers can help you understand whether equity release fits your needs and longer-term plans.
See how much you may be able to release
Understand the interest, costs and conditions
Compare equity release with suitable alternatives
Talk through your options
Get help understanding the choices, costs and potential impact on your estate.
You should think carefully before taking out a lifetime mortgage.
Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits.
A lifetime mortgage is a loan secured against your home.
To understand the features and risks, ask for a personalised illustration.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Your equity release questions answered
Is equity release tax-free?
You generally do not pay income tax on money you receive from a lifetime mortgage because you are borrowing it rather than earning it. Saving, investing or gifting the money may have tax or benefit consequences.
Can you repay equity release early?
Many lifetime mortgages allow optional payments within set limits. You may also be able to repay the loan in full, although an early repayment charge can apply.
What happens when you die?
After the final borrower dies, the sale of the property normally repays the lifetime mortgage. The estate keeps any money left after repaying the loan and relevant costs.
Could equity release affect benefits?
Yes. Money you release and keep as savings can affect means-tested benefits. Check the potential impact before deciding how much to borrow.
Can you move home afterwards?
Many lifetime mortgages can move with you if the new property meets the provider’s criteria. Depending on the property and loan, you may need to repay part of the balance.
