Equity Release FAQ: A Comprehensive Guide to Home Equity

Equity release can be a complex and intimidating topic, but it doesn't have to be. The key is understanding the basics, and that's where this FAQ guide comes in.

You can release up to 60% of your home's value, depending on your age and the type of equity release product you choose.

Equity release is a type of loan that allows homeowners to tap into the value of their property, and it's usually tax-free.

The amount you can borrow will depend on your age, the value of your home, and the type of equity release product you choose.

Home equity release can be a great way to access cash for retirement or other financial goals, but it's essential to understand the potential risks and costs involved.

You're probably wondering who's eligible for equity release. The minimum age to qualify is 55 years old.

To be eligible, you must own or intend to own a UK property worth at least £70,000. This is a non-negotiable requirement, so make sure your property meets this value before applying.

You'll also need to be mortgage-free or able to clear your existing mortgage on completion. Many people use the equity release itself to clear their mortgage, but you can also use other funds if you have them available.

If you've experienced credit problems in the past, it's not necessarily a barrier to equity release. However, if you've made special arrangements with creditors, such as an IVA, CCJ, or Debt Management Plan, you may need to meet certain requirements.

Here are the key eligibility criteria:

You can use a free equity release calculator to get an estimate of the amount you could release from your property.

The amount of equity you can release is based on your age and the value of your home.

Using a lifetime mortgage calculator can give you an instant estimate of how much cash you could release.

You can book a no-obligation appointment with a fully qualified adviser to get a more accurate picture of the amount you can release.

Call the Information Team on 0800 048 5384 to arrange your appointment.

You can release equity from your home to pay off debt, and many people choose to do so to consolidate unsecured debts. This can be a great way to sort your finances as you enter retirement.

With a Lifetime Mortgage, you don't need to make payments unless you choose to do so. The interest is added to what you owe and builds up over time. You can make voluntary payments of up to 10% of the original amount borrowed per year without penalty, which can help reduce the impact of your Lifetime Mortgage on your estate.

The amount you can release depends on your age and the value of your property. You can use our calculator to get a quick indication.

A mortgage is a loan secured against the value of a property, typically requiring regular payments to pay back the loan and interest.

The amount you can borrow depends on your age and the property's value, with older homeowners and more valuable properties allowing for larger loan sums.

There are different types of mortgages, with some having a time limit or end date for repayment.

A Lifetime Mortgage, one of the most common types, is a loan with no time limit or end date, only repaid when the property is sold or the last borrower passes away or moves into care.

With a Lifetime Mortgage, the loan is only repaid when the property is sold, making it a long-term financial arrangement.

A Lifetime Mortgage is a loan secured against your home, and there are several costs involved in taking it out, including set-up fees, legal fees, and valuation fees.

The amount you'll need to repay when you die or move permanently into long-term care will depend on the amount of equity you release, how long you've had the loan, the rate of interest charged, and any fees added.

Interest on a Lifetime Mortgage is usually rolled up or compounded monthly, which means the interest for the second month is calculated on the sum of the original loan plus the interest that was charged during the first month.

This compounding of interest continues throughout the term of the plan, unless you make full monthly interest payments, which is an option on some products.

A Home Reversion Plan isn't a loan, so it won't accumulate interest. Instead, the provider will receive the agreed proportion of the property value when it's sold following your death or permanent move into long-term care.

Most lenders allow up to 12 months for the money to be repaid from the sale proceeds of the property, although this can vary between providers.

Here are the possible costs involved in taking out a Lifetime Mortgage:

You can add some of these fees to your loan to avoid too many upfront costs, but this will increase the amount you'll need to repay when you die or move into long-term care.

Equity release plans have changed for the better, with the Equity Release Council introducing customer-focused safeguards to protect consumers. The Council upholds a no-negative-equity guarantee, ensuring you won't pass on Lifetime Mortgage debt to your loved ones.

This guarantee is a huge relief, as it means that the amount owed is capped at the value of your home when sold at market price. It's a safety net that gives you peace of mind.

You may be wondering about the risks involved. It's a big financial commitment, and deciding to purchase an equity release product should not be considered lightly. Everyone's circumstances are different, and what's right for you may not be right for someone else.

Here are some important things to consider:

There are two main types of Equity Release: Lifetime Mortgages, and Home Reversion Plans. It's extremely rare for a Home Reversion Plan to be an appropriate way of taking Equity Release.

Less than 1% of Equity Release arranged is via a Home Reversion Plan, making Lifetime Mortgages the more viable option.

The most common type of Equity Release is a Lifetime Mortgage, which is a loan against the value of the property.

The most common type of Equity Release is a Lifetime Mortgage, which is a loan against the value of the property.

A Lifetime Mortgage has no time limit or end date, and is only repaid when the property is sold, following the death or move into care of the last borrower.

The amount that can be borrowed is typically larger for older homeowners and those with more valuable properties.

One example of a company that offers Lifetime Mortgage Plans is Pure Retirement, which has a business model similar to more2life.

You can release equity from your home for various reasons, including paying off debts or helping loved ones financially. This is an option for homeowners aged 55 and over.

You can still be eligible for equity release if you have an existing mortgage, as long as you can clear it on completion of your Lifetime Mortgage.

One of the most popular reasons people choose to release equity is to clear their existing mortgage amount.

The money released from your home can be used for any purpose, such as paying off debts or helping loved ones financially.

Choosing a provider is a crucial step in the equity release process. There are nine Lifetime Mortgage lenders that are members of the Equity Release Council and offer their plans through truly independent advisers.

These lenders are regulated and authorised by the FCA, so you can feel reassured that they are bona fide providers. You can research and compare their plans to find the one that suits your needs best.

more2life is a notable provider that offers flexible plans, including larger loans for borrowers with certain medical conditions or lifestyle issues. They don't have their own money to lend, but instead, set up deals with third parties to provide funding for their range of plans.

Choosing a provider can be a daunting task, but it's essential to make an informed decision. There are four main considerations to take into account when choosing an Equity Release adviser, as guided by Laterlivingnow MD and Equity Release specialist, Simon Chalk.

You want to ensure that the provider you choose is regulated and authorised by the Financial Conduct Authority (FCA). This is a crucial factor, as it guarantees that the provider is a bona fide company.

Currently, there are nine Lifetime Mortgage lenders who offer their plans through truly independent advisers and are members of the Equity Release Council. These lenders are all regulated and authorised by the FCA.

Consider the reputation of the provider, including their experience and expertise in the field. You may also want to research their customer reviews and testimonials to get a sense of their service quality.

Some providers, like more2life, don't have their own money to lend, but instead, set up deals with third parties to provide the funding for their plans. This is a unique approach that may be worth exploring.

It's essential to choose a provider that offers flexible plans, such as more2life, which offers larger loans for borrowers with certain medical conditions or lifestyle issues.

There are nine Lifetime Mortgage lenders who offer their plans through truly independent advisers and are members of the Equity Release Council.

These lenders are all regulated and authorised by the FCA, so you can feel reassured that they are bona fide providers.

You can't just go and choose an Equity Release plan without getting advice - the Financial Conduct Authority requires that homeowners over 55 take financial advice before doing so.

There are over 400 different Equity Release plans on the market, making it confusing and difficult to know where to begin looking for sound, impartial advice.

A financial adviser who is authorised and regulated by the Financial Conduct Authority is your best source of independent advice about Equity Release.

To find a specialist adviser, look for one who holds the Society of Later Life Advisers (SOLLA) or the Later Life Academy accreditation.

These accreditations show that the adviser has specialist knowledge in providing Equity Release advice and understands the need to safeguard vulnerable people.

Taking independent Equity Release advice can also provide a good means of protection - if you don't take advice and end up with an unsuitable plan, you may have fewer grounds for making a complaint.

Here are the two specialist accreditations to look out for:

The primary cost to consider when thinking about Equity Release is the interest rate, as this determines the overall amount that will need to be paid back to the lender.

One-off fees for financial advice, a solicitor, and possibly to the lender can be paid from the Equity Release money itself, but keep in mind that any fees added to the loan will have interest applied to them.

You can find out more about the costs of Equity Release on our Equity Release Calculator page, which has a free-to-use calculator that requires no personal details to be entered.

Inheritance Tax and Equity Release are related, but let's focus on the basics. Inheritance Tax is paid when a person passes away, and the amount owed depends on various factors.

To give you a quick rundown, here are some key points to consider:

The primary cost to consider when thinking about Equity Release is the interest rate, as this determines the overall amount that will need to be paid back to the lender.

One-off fees to be paid for financial advice, a solicitor, and possibly to the lender can often be met from the Equity Release money itself, but keep in mind that any fees you add to the loan will have interest applied to them.

You can expect to pay costs similar to those of a regular mortgage when releasing equity from your home.

Inheritance Tax is a significant concern for many people, especially those who are planning to pass on their wealth to their loved ones.

The amount of Inheritance Tax you pay depends on the value of your estate, which includes your property, savings, and other assets.

You pay Inheritance Tax on the amount of your estate that exceeds the threshold, which is currently £325,000.

Equity release can have a significant impact on your benefits, including state pensions and other government benefits.

If you release equity from your home, you may be eligible for a tax-free lump sum, but this could affect your entitlement to benefits.

Inheritance Tax is typically paid by the executor of the estate, usually the person who is responsible for managing the deceased person's affairs.

The deadline for paying Inheritance Tax is usually six months after the date of death.

Here's a brief summary of the key points: