05 February 2024

Many people come to us with questions about equity release. What is equity release? How does it work? And in particular, how does equity release work in the UK?

Well, equity release is a way of unlocking some of the value of your home without having to move out. It can help you access a tax-free lump sum or a regular income, depending on your needs and preferences.

Our own equity release products include Lifetime Mortgages (LTMs) which people aged 55 or older can access. We’ve also just started offering a new kind of product called a Payment Term Lifetime Mortgage (PTLM), which you can take out once you’re 50 plus.

Read on if you have more questions about how equity release schemes work.

How does releasing equity work?

There are two main types of equity release – a lifetime mortgage and a home reversion plan. With a lifetime mortgage, you secure a loan against the value of your home. And with home reversion plans, you sell part of the value of your home to your provider.

  • With a lifetime mortgage, the amount you can release is based on your age and the value of your home. You can choose to pay all, some or none of the interest each month. If you choose not to pay back the interest, it will be added to the loan every month and can build up quickly. 
  • With a home reversion plan, you can sell between 25% and 100% of the value of your home to your lender,  in return for a cash lump sum, a regular income or both. They're usually available once you're aged 65+. 

Not everyone will qualify for equity release. You may fail their credit check, not hold enough equity in your home or it may be a property your lender isn't happy to lend against - for example, it may have a thatched roof.

As with any financial product, there are costs involved with setting them up. Read our How much does equity release cost? article to find out more. It’s also important to understand how Equity release interest rates work. And you might be able to remortgage with a standard mortgage.

Equity release isn’t for everyone. It’s a long-term commitment that may affect your entitlement to means-tested benefits. You should always seek professional advice before deciding if it’s right for you. In fact, you can only take out equity release products through a qualified financial adviser.

Want to learn more about equity release?

Find out more about our range of equity release products, and try our equity release calculator to find out which product might best suit your needs.

How long does equity release take?

On average, the whole equity release process can take eight to twelve weeks. The exact time depends on the kind of product you’ve gone for.

The first step is to speak to an adviser to make sure that equity release is the right choice for you. They’ll also help you find the right provider and product, and guide you through the rest of the process. You’ll then need to submit your application.

Your provider will value your home and you’ll find and appoint a solicitor. It’s a good idea to use one with equity release experience – they’ll help you avoid or at least speed up any delays, which can happen if:

  • your property isn’t registered at The Land Registry
  • you’ve set up Enduring or Lasting Power of Attorney for someone else
  • you have:
    • a Leasehold Property
    • a property that’s subject to a Trust
    • a buildings insurance schedule

Your solicitor will be able to help you with all of these. Once all the legal checks are done you should get a completion date. You’ll need to pay any legal fees too.

How does equity release work when you die?

That depends on the kind of equity release product you’ve chosen, and if you're the last surviving borrower living in your home. If no one else will be living in the home:

  • With a lifetime mortgage, you’ll have a loan that will need to be repaid, usually by selling your home.
  • With a home reversion plan, your provider owns part of your property. They’ll usually need the property to be sold after your death.

In both cases your beneficiaries will get any money left, but they won’t benefit from the full value of the property. If they want to keep the property, they may be able to pay off the debt. If you choose to take out a lifetime mortgage, you might be able to borrow a lower amount and take out inheritance protection, which will guarantee that they’ll always get a fixed amount of the value of your home after your death.

What happens if I go into care?

If you move into long-term care and are the last surviving borrower, your home will usually be sold. If you move into care and your partner is still living at the house, then your lifetime mortgage or home reversion plan will continue as normal. 

What’s next?

You can only take out equity release through a qualified financial adviser. Before you meet with them, you might want to read more about it – including our articles about:

So that’s how equity release works. But how does equity release work on your home? Well, if you want to see how much equity you might be able to release from your property, try our Equity Release Calculator.

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Get equity release advice

Our equity release specialists are waiting to answer your questions about equity release.

For any other enquiries please get in touch via our contact us page

0808 301 7044

Monday to Friday 9:00am - 5:30pm
We may record and monitor calls.

FAQs

How does remortgaging work to release equity?

To release equity by remortgaging, you take out a new mortgage that’s larger than your current one. Any money left over once you’ve paid off your old mortgage goes straight to you. You may have to pay an early repayment charge to your existing lender if you remortgage.

How does drawdown equity release work?

Instead of getting your money as a single lump sum you can access it in smaller amounts as and when you need it. It’s only available with some equity release products, like our Optional Payment Lifetime Mortgage and Interest Roll Up Lifetime Mortgage. Taking the money in stages can reduce the overall amount of your loan and help keep your interest payments down.

How do I repay an equity release mortgage?

You usually repay an equity release mortgage through the sale of your property when the last surviving borrower dies or moves into long-term care.

Can I still protect an inheritance with equity release?

Yes – you can take out inheritance protection on some lifetime mortgage products, which sets aside a guaranteed inheritance for your loved ones. And with some products you can choose to pay some or all of your monthly interest. That stops your debt from growing as much as it could and leaves more to go to your loved ones. You can also gift money you receive through equity release to loved ones before you die. Taking out inheritance protection reduces the amount you'll be able to borrow though.

Whatever you choose to do, it’s very important to be aware of the inheritance tax implications. Read our Equity release and inheritance tax article to find out more.

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