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Enhanced Equity Release – What You Should Know

enhanced equity release

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

Enhanced equity release is a good option for those considering equity release with ill health or a terminal condition. The amount of money you could release as tax-free cash within an enhanced lifetime mortgage could be far more than in a standard lifetime mortgage, giving you greater comfort in your twilight years.

In this guide, we swiftly recap on equity release before fully explaining enhanced equity release schemes in the UK. 

What is equity release?

Equity release is an option for homeowners in later life who want to access a lump sum of cash that they do not have to repay until their home is sold, either after they die or if they move into aged care. They continue living in their home as normal. 

What is the catch with equity release?

There is no real catch with equity release as long as you recognise how they work. You will need to pay back the money from your estate and the sale of the property. And you will be limited on the amount of equity you can release, or you may be offered a deal that is perceived as unfair. 

However, this is because lenders need to cover their back in case your property becomes less valuable – while still trying to make a profit over the long term. It can be risky for the lender too.

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Lifetime mortgage and home reversion scheme

Lifetime mortgages and home reversion schemes are the two standard methods of equity release in the UK. When taking out either one, you can remain in your property for as long as you live or until you move into long-term care. These loans are only repaid through the sale of your home from your estate when you die, or the home is sold to repay the debt when you move into care. You do not have to make repayments at all, but you may choose to in some schemes. 

Lifetime mortgages

A lifetime mortgage allows you to take equity out of a percentage of your home as a lump sum payment. How much money you could get will be primarily based on your age and property value. This lump sum is charged with rolling interest that increases the total debt for when the home is eventually sold. You may decide to pay off some for the interest each month. The negative equity guarantee stops you from ever owing more than what your home is sold for. 

Home reversion plans

A home reversion plan does not charge interest but makes you an offer for a percentage of the property that is severely undervalued. For example, they will ask for 70% of your home for 25% of its real value. This is actually a loan that is repaid when the home is eventually sold, as explained in the situations earlier.

What is a medically enhanced equity release plan?

A medically enhanced equity release plan is a plan that takes into account your medical history and overall health as part of the deal. You’ll need to fill in a lifestyle questionnaire as part of the application process.

We’ve discussed this in more detail below…

What is enhanced equity release?

Enhanced equity release is when you use a special type of lifetime mortgage, known as an impaired lifetime mortgage or enhanced lifetime mortgage. These equity release mortgages ensure that the lender takes into account your health to assess how much equity you can release and/or the interest rate you receive. 

In a nutshell, an enhanced lifetime mortgage lender will allow people with poorer health to access more equity or a lower interest rate. 

Enhanced lifetime mortgages in detail

An enhanced lifetime mortgage lender works from the logical principle that people with poorer health have a lesser life expectancy, and thus, they can provide a better deal to people who are expected to die sooner than others. They will analyse your daily lifestyle and medical records to make a judgement.

They will look at things like:

  1. Your Body Mass Index (BMI)
  2. How often you smoke and drink alcohol
  3. High blood pressure
  4. If you have diabetes
  5. If you take ongoing prescription medication
  6. Your medical records to identify instances of a heart attack, cancers or other serious conditions

These are some of the common things that an enhanced lifetime mortgage provider will analyse, but it is not an exhaustive list. 

Do you need a medical for equity release?

You do not need to complete a medical for a normal equity release plan, and you still don’t have to complete a medical for enhanced equity release. When you try to get a better deal with enhanced equity release, you only need to complete a health and lifestyle questionnaire, and possibly provide copies of medical records to verify your answers. No additional medical is required. 

Do I qualify for an enhanced lifetime mortgage? 

If you tick any of the boxes on the lender’s health and lifestyle assessment to indicate poor health or a serious issue, you may qualify for an enhanced lifetime mortgage. However, qualifying for enhanced lifetime mortgages doesn’t stipulate how ‘enhanced’ the mortgage deal will be. 

For example, being a regular smoker will not get you as good of a deal as having terminal cancer. Some providers only offer better deals to those with serious health concerns. Drinking or smoking more than recommended will not improve your deal by much – or at all. Each case is assessed on its own merits to establish a degree of improvement in the lifetime mortgage. 

To find out how much money you could release with an impaired lifetime mortgage, lenders sometimes include a special equity release calculator on their website. 

What are the advantages of enhanced lifetime mortgages?

The most notable advantage of using an enhanced lifetime mortgage is that doing so could allow you to increase the amount of money you could release from a lifetime mortgage. And it could lower the rate of interest applied to your loan. 

This can be especially beneficial if you have a serious health issue and need the money to make life more comfortable, such as modifying your home (approval may be needed!), or to see or do things on a lifelong bucket list. 

The other advantages of an enhanced lifetime mortgage are:

  1. You do not need to complete a medical
  2. You’re still protected by the negative equity guarantee
  3. The money remains tax-free

What are the disadvantages of enhanced lifetime mortgages?

There are some disadvantages of these mortgages to be aware of, including:

  1. Taking out a greater amount of equity could devalue your estate and reduce beneficiaries’ inheritance. 
  2. They may take longer to set up if a doctor’s report or medical records are required.
  3. Taking a greater lump sum could affect some means-tested benefits.
  4. Early repayment charges are still very high on average

Which companies offer enhanced lifetime mortgages?

Not every equity release company offers enhanced mortgages because they are more time-consuming and complex to process. However, there are still a handful of providers that do and it’s important to search all of the market to find the best option for your requirements. 

To get you started, two providers that offer these lifetime mortgages at the time of writing are Aviva and Just Retirement

What is a drawdown enhanced lifetime mortgage?

A drawdown enhanced lifetime mortgage works in the same way as an enhanced lifetime mortgage with one key difference. Instead of receiving a lump-sum payment from the mortgage provider, you receive the full loan amount in stages as you need it. This is formally known as a drawdown facility. These payments are still tax-free cash. 

What is the best type of equity release?

Enhanced lifetime mortgages are considered the best equity release option because they provide a better deal for people with poor health who are more likely to pass away sooner than others. If you have a low life expectancy due to a medical condition, using an enhanced lifetime mortgage over a regular lifetime mortgage or a home reversion scheme is probably the best idea. 

However, you should still seek professional advice that is independent of your preferred equity release provider and is authorised and regulated by the Financial Conduct Authority (FCA). 

Is equity release a bad idea?

It’s impossible to say whether equity release plans are a good or bad idea. Whether or not you should use one will depend on personal circumstances and objectives. For example, somebody with no children to leave their estate to could be less worried about using equity release compared to someone with children who they know are relying on inheritance in the future. 

Everyone should get equity release advice before making a decision. 

Uncover more about different equity release schemes

To learn more about equity release and lifetime mortgage schemes, click back to MoneyNerd soon. We have lots more to tell about equity release in the UK, including information on tax, risks, benefits and even how it can affect means-tested benefits. Check out our other equity release guides soon! 

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