Equity release allows homeowners aged 55 and over to access some of the money tied up in the value of their home without needing to move out. For many people, releasing equity can provide extra financial flexibility later in life, whether that involves home improvements, supplementing retirement income or helping family members financially. The two main types of equity release are a lifetime mortgage and a home reversion plan, both of which work differently depending on your circumstances and the type of equity release plan chosen.
Before taking equity release, it’s important to understand how equity release work, the long-term impact on your finances and how interest payments may affect the amount you owe over time.
Here at Jones & Young, we regularly help homeowners understand the equity release process, explore their options and decide whether home equity release is suitable for their needs.
In this guide, we’ll explain how equity release works, what lenders and providers consider, and the factors that may affect how much equity you can release from your property.
What Is Equity Release and How Does It Work?
Equity release is a way for homeowners aged 55 and over to access some of the money tied up in the value of their home. Instead of selling your property and moving out, an equity release mortgage allows you to release money while continuing to live in your home.
The amount you can borrow will usually depend on:
your age
the market value of your property
whether you have an outstanding mortgage
the type of equity release product you choose
For many homeowners, releasing equity can provide access to a tax free lump sum or smaller regular payments later in life. Some people use the money for home improvements, while others use it to support retirement income or help family members financially.
Most equity release schemes are designed as long term financial products. Depending on the option chosen, interest may build up over time and increase the amount you owe. Because of this, it’s important to understand how equity release works before making any decisions.
If you already have an existing mortgage, part of the money raised may need to be used to repay it before you can access any remaining funds.
The Main Types of Equity Release
There are two main types of equity release available in the UK: lifetime mortgages and home reversion plans. Both allow homeowners to access money from their property, although they work in different ways.
Lifetime Mortgage
A lifetime mortgage is the most common type of home equity release. It involves taking out a loan secured against your property while keeping ownership of your home.
With a lifetime mortgage:
you continue living in your property and retain full ownership.
the loan is usually repaid when the homeowner dies or moves into long term care
interest payments may either roll up over time or be paid voluntarily
some products allow monthly repayments or inheritance protection features
The amount available will depend on the value of your home and your age. Lifetime mortgage products also come with a fixed interest rate, helping homeowners understand the long term costs involved.
Home Reversion Plan
A home reversion plan works differently from a lifetime mortgage. Instead of borrowing money, you sell part or all of your property to a reversion company in exchange for a cash lump sum or regular payments.
With home reversion:
you can usually remain in your property until moving into long term care or passing away
the provider receives their share of the property once it is sold
you no longer retain full ownership of the home
Like other equity release schemes, a home reversion plan may not be suitable for everyone. Taking professional advice can help you understand which option best suits your circumstances.
How Does the Equity Release Process Work?
The equity release process usually starts with speaking to a financial adviser who can explain the different options available and whether releasing equity is suitable for your circumstances. Because equity release is a long term financial commitment, many homeowners choose to take professional advice before proceeding.
Once you have chosen a suitable equity release product, the lender or equity release provider will arrange a valuation to confirm the market value of your property. If you have an outstanding mortgage, this may need to be repaid using part of the money raised.
Before completing the application, you will also need independent legal advice. Your solicitor will explain the equity release agreement, any costs involved and your responsibilities under the loan.
After approval, the funds can usually be taken as:
a lump sum
regular payments
a drawdown facility
Depending on the product chosen, interest payments may build up over time and increase the amount you owe.
How Much Equity Can You Release?
How much equity you can release will depend on several factors, including your age, the value of your home and whether you still have an existing mortgage.
In general:
older homeowners can usually release more equity
higher property values may increase the amount available
existing borrowing may reduce the money you can access
Equity release lenders will also consider current house prices and the estimated market value of the property during the application process. Because lending criteria varies between providers, the amount available may differ depending on the product selected.
Speaking with a financial adviser can help you understand how much equity may realistically be available based on your circumstances. Some homeowners also choose to use our equity release calculator to get a rough estimate of how much may be available based on their age and property value.
What Can You Use Equity Release For?
People choose home equity release for different reasons depending on their financial circumstances later in life. For some homeowners, it can provide extra flexibility without needing to move to a cheaper property.
Common reasons for taking equity release include:
funding home improvements
supplementing retirement income
helping family members financially
repaying an existing mortgage at the end of its term
covering larger one-off expenses
Some people also use a lump sum as additional financial support during retirement when pension income alone may not feel enough.
Before proceeding, it’s important to understand how releasing equity could affect your tax position, state benefits or means tested benefits in the future.
How Interest Rates Work with Equity Release?
Most lifetime mortgage products charge interest on the amount borrowed. Depending on the product chosen, the interest payments may either be mandated, paid voluntarily or added to the loan balance over time.
Many equity release products use a fixed interest rate, which means the rate will not normally change during the life of the loan. However, because interest can build up over many years, the total amount you owe may increase significantly over time.
Before taking equity release, it’s important to understand:
how interest rates apply
whether early repayment charges apply
the long term costs involved
whether voluntary payments are available
An equity release adviser can help explain how different products work and how interest may affect the overall balance later on.
Is Equity Release Safe?
Equity release products are regulated by the Financial Conduct Authority, and many providers are members of the Equity Release Council. While equity release can help some homeowners access money later in life, it is still a major financial commitment and may not be suitable for everyone.
The Equity Release Council sets standards designed to help protect customers. These protections may include:
a no negative equity guarantee
the right to remain in your home for life
clear information about costs and features
access to a complaints procedure
Before taking equity release, it’s important to seek professional advice and fully understand the long term impact on your finances and estate.
Things to Consider Before Taking Equity Release
Before taking equity release, it’s important to understand both the short and long term implications. While releasing equity can provide financial flexibility, it may also affect your future finances and the amount left to your family later on.
Impact On Inheritance
Because interest may build up over time, taking equity release could reduce the inheritance you leave behind. Some products offer inheritance protection features, although this may reduce the amount available to borrow.
Means Tested Benefits
Releasing a lump sum could affect certain state benefits or means tested benefits. This will depend on your financial circumstances and how the money is used or held.
Early Repayment Charges
Some equity release schemes include an early repayment charge if you choose to repay the loan sooner than expected. The costs can vary between providers and products.
Long Term Costs
Equity release is designed as a long term loan. Depending on the product selected, the amount you owe may increase significantly over time due to interest payments.
Alternative Options
Before proceeding, it’s worth considering whether other options may be more suitable. This could include downsizing, additional borrowing or using existing savings instead.
What Are the Alternatives to Equity Release?
Equity release is not the right solution for every homeowner. Before taking equity release, it’s worth considering whether there are other ways to improve your financial position later in life.
Some alternatives may include:
downsizing to a cheaper property
using existing savings or investments
considering additional borrowing
switching to a new mortgage
speaking to family members about financial support
For some homeowners, moving to a smaller property may free up enough money without taking on a long term loan secured against their home. Others may find that remortgaging or restructuring an existing mortgage better suits their circumstances.
The right option will depend on your income, retirement plans, property value and overall financial situation. Speaking with a financial adviser can help you compare the potential costs and long term impact of each option before making a decision.
Why Speaking to an Equity Release Adviser Matters
Equity release can help some homeowners access money later in life, but it is still a major financial decision with long term implications. Because different lenders and providers assess applications differently, seeking further advice before proceeding can help you understand which options may be suitable for your circumstances.
A financial adviser can explain:
how different equity release products work
the potential costs involved
how interest may affect the amount you owe
whether alternatives may be more appropriate
Here at Jones & Young, we help homeowners understand the different options available and what to consider before taking equity release. If you would like to speak with an experienced equity release broker, feel free to contact us for further guidance and support.
Equity Release FAQs
Here at Jones & Young, we’re regularly asked questions about equity release, lifetime mortgages and later life borrowing. Below, we’ve answered some of the most common questions homeowners ask before taking equity release.
How does equity release work with a lifetime mortgage?
A lifetime mortgage is the most common type of equity release in the UK. It allows homeowners aged 55 and over to borrow money against the value of their home while continuing to live in the property.
The loan is usually repaid when the homeowner passes away or moves into long term care. Depending on the equity release product chosen, interest may either build up over time or be paid voluntarily through monthly repayments.
What types of equity release schemes are available?
There are two main types of equity release schemes available: lifetime mortgages and home reversion plans. Both allow homeowners to release money tied up in their property, although they work differently.
With a lifetime mortgage, you borrow against your home while keeping ownership. With a home reversion plan, part or all of the property is sold to a reversion company in exchange for a lump sum or regular payments.
Can equity release affect inheritance and state benefits?
Yes, taking equity release may reduce the amount of inheritance left to your family because the amount you owe can increase over time through interest payments.
Releasing a lump sum may also affect eligibility for certain means tested benefits or state benefits. This will depend on your financial circumstances and how the money is used or stored after release.
Is a home reversion plan different from a lifetime mortgage?
Yes. A home reversion plan involves selling part or all of your property to a provider while retaining the right to remain living there, usually until moving into long term care.
A lifetime mortgage works differently because it is a loan secured against your home. You still retain ownership of the property, although the loan balance and interest may increase over time.
Can you make monthly repayments on an equity release mortgage?
Some equity release mortgage products allow homeowners to make voluntary interest payments or monthly repayments. This can help reduce the amount owed later on.
However, not all products work in the same way. Some plans allow the interest to roll up over time instead, meaning the balance may grow throughout the life of the loan.
How does the Equity Release Council protect homeowners?
The Equity Release Council is an industry body that sets standards for equity release providers and advisers. Many lenders offering equity release products are members of the council.
Protections may include a negative equity guarantee, clear product information and the right to remain in your property for life. Providers should also have a formal complaints procedure in place if issues arise.
