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The Best Equity Release Deals – Complete Analysis 2022

Best Equity Release Deals

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

What are the best equity release deals? We take a look at equity release interest rates before looking at three options that could be attractive depending on your situation. Let’s get straight into it. 

What are equity release deals?

Equity release products are a way for older homeowners to borrow money secured by their home. Older people can often struggle to get approved for loans and credit, especially when in retirement. Therefore equity release products could be their only way of borrowing. 

The reason equity release plans are still an option for senior homeowners is because these loans do not require any monthly repayments. The loan is only repaid after death with some of the money raised from the sale of their property. Or it is paid back sooner from the property sale if they move into long-term care. 

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What is the catch with equity release?

The catch with an equity release plan is that it is likely to be expensive. Depending on the type of equity release plan you have and how long you live, your debt can easily double. This means you’ll pass on significantly less wealth to your family. 

How do equity release deals work?

To access the equity in your home through this method, the youngest homeowner will need to be at least 55 years old and be releasing the equity from their main residence with no outstanding mortgage. There are two types of equity release, called lifetime mortgages and home reversion plans:

#1: Lifetime mortgage

A lifetime mortgage, also known as an equity release mortgage, asks for no repayments on the loan but does charge interest on the amount borrowed. The interest gets added to the total debt so it increases over time. Whatever figure the debt has grown to by the time the debt needs to be repaid will be taken from the property’s sale proceeds. 

Lifetime mortgages can provide the loan as a cash lump sum or as a drawdown, known as a drawdown lifetime mortgage.  

#2: Home reversion plan

Home reversion schemes work by not applying any interest to the loan, but from the start of the agreement, get the homeowner to agree to give the lender a fixed percentage of the future property sale money. For example, you could take out equity to the value of 20% but have to repay 50% of the sale money when you die or move into care. 

What is a typical interest rate for equity release?

As explained, only equity release mortgages charge interest on the loan. The best equity release interest rates are below 5% with some standard rates rising to around 8%. You will need to compare equity release providers, possibly with the help of a financial adviser and an equity release calculator, to find the best rates. 

How are equity release interest rates determined?

Equity release mortgage providers will decide what interest rate they will offer based on a number of factors, including the size of your loan, your age and details about your property. You can usually find lower lifetime mortgage rates if you are above 70 years old – but not exclusively as the aforementioned factors are also considered. 

What is the best type of equity release?

It is difficult to say what the best type of equity release is because personal circumstances will affect how you compare equity release plans and what you need. This is why it is essential that you receive equity release financial advice before proceeding. 

The most popular equity release scheme in the UK is a lifetime mortgage. This may be due to lifetime mortgages being more widely advertised – but there could be another reason. 

The debt created through equity release mortgages grows over time, whereas the debt from a home reversion plan is instantly applied and presents an additional risk, such as unexpectedly falling ill and needing to move into long-term care. 

Are equity release schemes any good?

Lifetime mortgages and home reversion plans can be good for certain people. They can help make retirement more comfortable, pay for home improvements or even create a nest egg for annual holidays. They are a much easier decision if you do not have anyone to leave your estate, such as children.

You should only be considering a lifetime mortgage from a lender or bank that is authorised and regulated by the Financial Conduct Authority. Moreover, it is best to stick with lenders that are members of the Equity Release Council, which will be explained shortly. 

What are the best equity release deals?

Because equity release interest rates are decided on a case-by-case basis, it is difficult to identify the very best equity release deals on this metric alone. You will need to complete your own diligent research, possibly with the help of an equity release broker. 

But we can identify equity release schemes that stand out on the market in other regards. Here are some equity release providers to consider during your search, but you should always complete extended research:

  1. Nationwide Bank

Nationwide are one of the few UK banks that advertise their lifetime mortgages on their website in detail. They are available to people between the age of 55 and 84 years old. With this lifetime mortgage, you are allowed to downsize without incurring any charges after just five years. They’ll also give you £1,000 cashback which could be used to cover legal costs. 

  1. More 2 Life

More 2 Life offers equity release with flexibility. They do not charge any early repayment costs after ten years, making it easier than ever to exit your agreement if you change your mind. They also boast low fees for adding and removing names to your plan and include downsizing protection to make downsizing easier and cheaper in the future. 

  1. One Family

One Family could be a good choice if you plan to take out a lot of equity as a loan. Most advisers charge a percentage of your loan up to 4%, but One Family can supply you with advice for a fixed fee of £950, which will save money on those taking big loans.  

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What is the Equity Release Council?

The Equity Release Council is a voluntary membership body open to all equity release lenders and advisers. Any company that wants to join must be a legitimate company that is authorised and regulated by the Financial Conduct Authority. So you know that all members are not scam companies from the outset. 

By joining the council, all members must adhere to the group’s rules and guidelines that have been composed to protect homeowners and offer additional assurances. This is what makes choosing an Equity Release Council member more appealing. 

One of the benefits of choosing a lender with membership is that they must commit to the negative equity guarantee. The negative equity guarantee states that when a homeowner has a lifetime mortgage, they cannot owe more than what their home sells for. 

For example, if you have a lifetime mortgage for decades because you live to an older age, the interest on the equity release mortgage will have significantly grown and created a big debt. But no matter how much the debt has grown, you never pay more back than what your home sells for. Neither the money from your estate nor estate beneficiaries are required to pay the shortfall either.

What are the drawbacks to an equity release loan?

Aside from the high cost of equity release and how this affects the estate you can pass on after you die, there are some other drawbacks to using an equity release product. 

The first negative is that a lifetime mortgage or other plan is designed to be held for life. As a result, the early repayment charges can be excessive. We may have uncovered some lifetime mortgages with low and decreasing early repayment fees in this guide, but other plans are not as easy to get out of. For example, at the time of writing and subject to change, Aviva offers a lifetime mortgage with a fixed 25% early repayment cost. 

Another potential drawback of using a lifetime mortgage is that releasing equity as a lump sum could affect your eligibility to receive some state benefits. Your state pension will not be affected, but having too much money in the bank can result in losing access to pension top-up payments called Pension Credits or even Universal Credit payments. 

Are equity release schemes taxed?

The money received from a lifetime mortgage or home reversion plan is tax-free cash whether it is paid out as a lump sum or as a drawdown. HMRC does not tax money you receive as a personal loan, secured or unsecured. 

This question often comes up because a lifetime mortgage can feel like free money due to there being no monthly payments. But remember that you are taking out a loan. 

Is there a better alternative to equity release?

All alternative options should be explored before deciding to compare equity release options and make an application. This is also the job of your financial adviser. If they ignore a better option for you and you then take out equity release, this can be classed as being mis-sold a plan and you could complain to the Financial Ombudsman Service. 

One alternative option is to sell your home and move into a smaller or less valuable property. Doing so will create a pool of money that can be used for your retirement without having to use equity release. There may be reasons why this alternative option is not attractive either, such as the stress and costs of moving, or sentimental attachment to your current family home. 

Want to know more about equity release plans in the UK?

For more information on the best equity release interest rates and deals, check out the other guides on these topics for free at MoneyNerd.

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