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Equity Release Advice – Complete Review 2022

equity release advice

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

Do you have to get equity release advice before committing to a lifetime mortgage or other equity release product? Find out the answer to this question and uncover the average costs of equity release advice in the UK, right here! 

Equity release explained

Equity release is a method used by senior homeowners to access some of their home equity as a cash lump sum or drawdown facility. 

This money only has to be paid back when they sell their home, but the homeowner can only be forced into selling their property if they move into long-term care. If the homeowner does not need to move into a residential care home, then the property is sold after their death and the sale proceeds are used to pay back the equity and any interest if applicable. 

Don’t confuse equity release with home equity loans used by younger homeowners. 

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What is the catch with equity release?

Equity release might sound too good to be true. You really do receive some of your home equity as cash and do not need to make principal or interest monthly repayments. But there is somewhat of a “catch”.

The overall cost of equity release can be sky-high. No matter what form of equity release you decide to use, the amount you have to pay back when you die or move into long-term care can easily be more than double the amount borrowed. This then has an impact on how much of an inheritance your loved ones receive from your estate. 

Thus, the overall cost of equity release is seen as a catch, but it shouldn’t be there to catch you out. Your financial adviser should have explained the costs clearly within a consultation. 

Equity release eligibility criteria

To be eligible to use a form of equity release plan, you must meet the individual lender’s eligibility criteria. 

Applicants must meet age restrictions, which is usually a minimum of 55, 60 or 65 years old. Moreover, the property you release equity from must exceed a minimum value – usually around £75,000 – and it must be your main residence with no existing mortgage. 

The different equity release schemes

There are different types of equity release methods in the UK. It can be accomplished with a lifetime mortgage or a variation of this mortgage called an enhanced lifetime mortgage. Otherwise, it can be done with a home reversion scheme. We explain each with an example below. 

  1. Lifetime mortgage

Lifetime mortgages allow the senior homeowner to access up to 60% of their home equity. The money is subject to a rolling fixed interest rate. Neither the principal or interest is repaid each month, and instead, the interest builds up and gets added to the total debt. Some people make voluntary interest repayments to mitigate the size of their growing debt. 

For example, you might decide to take out 30% equity of your £195,000 home. This £65,000 is charged at an interest rate of 6.4%. After 12 years, you need to move into aged care and are therefore forced to sell the home to pay back the lender. Do you know how much you’ll owe the lender after these 12 years of growing interest?

… just under £137,000. 

So, if the value of your property remains the same, you’ll pay the lender close to £137,000 for your £65,000 loan and keep the remaining £58,000 minus any fees. You can use an equity release calculator to work out how much you would owe after so many years and months. 

  1. Enhanced lifetime mortgage

An enhanced lifetime mortgage works exactly the same as explained above. But these lifetime mortgages are designed to help people with terminal illnesses and shorter life expectancies to access even more equity than normal. Your life expectancy will be determined by a health and lifestyle questionnaire and medical records. 

For example, you might have been diagnosed with cancer and given around one year to live. The lender will offer to let you release more equity from your home than the standard maximum of 60%. This can be used to make your remaining time more comfortable and pay for private healthcare services. 

  1. Home reversion scheme

Home reversion schemes are far less common than lifetime mortgages, which is why some people use the terms equity release and lifetime mortgage interchangeably. However, some people still prefer to use them or might be recommended to them instead by their financial adviser. 

They do not usually include a rate of interest. They instead ask the homeowner to surrender a greater percentage of their home’s value than the equity they receive. The lender hopes the value of your home increases over time to make even bigger profits on the loan. 

For example, you may take out £20,000 from your £100,000 property but are asked to repay 60% of your home’s future sale proceeds. If the property value increases to £120,000 over time, you still have to pay back 60%, which would mean paying £72,000 for the initial £20,000. 

Why do people use equity release plans?

Equity release plans may be used for a wide variety of reasons. They are often used by pensioners to make their retirement more financially comfortable. They may use the money for general living, to pay off other debts, to go on multiple holidays or to complete home renovations. 

Some seniors may gift the money to their family and loved ones, possibly to help them get on the property ladder or to help start a new business. If you gift money and then pass away within seven years, that money is still subject to inheritance tax laws. 


Should I use lump sum or drawdown equity release?

Lifetime mortgages and home reversion plans can provide the equity from your home as a lump sum payment or as a drawdown facility. The former is simply a single huge payment into your bank account, whereas the latter is like a cash reserve you can access at any time you want.

Unless you need all of the money at once, it can be beneficial to choose a drawdown over a lump sum payment. When you use a drawdown, you only pay interest on the money you have received, so it can reduce your rolling interest bill on a lifetime mortgage. 

Moreover, by drawing down you can ensure your savings don’t exceed certain thresholds which would make you ineligible to receive some means-tested benefits. We’ll come back to this later in our guide. 

Is equity release a safe option?

Equity release can be expensive, but it can also be a very safe way of accessing money in your twilight years. To ensure you only consider safe equity release schemes, you should only look at equity release lenders that are members of the Equity Release Council.

For starters, the Equity Release Council only permits members that are authorised and regulated by the Financial Conduct Authority, so you know they are operating legally in the UK. 

But that’s not all…

What is the Equity Release Council?

The Equity Release Council is a group that creates rules and guidelines for its members, most of which are designed to offer greater protection and assurances to homeowners signing up for any type of equity release scheme. 

The group offers voluntary membership to lenders and financial advisers working in the equity release sector. Legal lenders do not have to join, but by doing so, they show they care about homeowners’ rights because they must follow the council’s rules and guidelines. 

Why should I only use Equity Release Council members?

The overarching reason you should only consider releasing equity with a lender that is a member of the Equity Release Council is that you are better protected in most cases. 

But how about some specifics?

  1. You will never be forced out of your home – all lenders must guarantee that homeowners will never be made to leave or sell their home for reasons other than going into care or after death. You can only be made to sell the property if you lied on applications or stop maintaining the property as standard. 
  2. The negative equity guarantee – you will have realised how fast a lifetime mortgage debt can grow and may be worried that your debt will become bigger than the value of your home. The negative equity guarantee prevents any member from chasing debts above the sale proceeds from your home. If you have savings, you’ll not need to pay the debt back with this money or from the rest of your estate. 
  3. You can still move home – members must agree to let you move to suitable alternative properties and take your lifetime mortgage with you. We discuss this in more detail towards the end of this guide. 

What is the downside to equity release?

The downside to a lifetime mortgage or other equity release plan is that it can be so expensive. As previously mentioned, your debt can quite easily more than double. And any early repayment charges to exit the agreement can be even more substantial than normal. 

By decreasing the money tied up in your property, the amount you can pass on to family and friends through your estate is greatly affected.  

Is releasing equity the right option for you?

Equity release is both a financial and personal decision. If you decide you are willing to use an equity release scheme, maybe because you don’t have children to pass your home to or your children are already wealthy, then it’s time to see if the numbers make sense. 

You can engage with an independent financial adviser to explain your options in more detail and to assess your financial circumstances to see if there are any alternative options. 

Do I have to get equity release advice first?

The current rules and regulations within the equity release sector state that all lenders must offer homeowners financial advice before agreeing to a plan. This is designed to protect people from taking out a plan without knowing the full implications of doing so, including the extent of costs. 

Yet, it is highly recommended to seek more than the advice offered to you by lenders. You should also be using independent financial advice from someone not connected to the lender. Their service is likely to go further to help you compare deals and make an application. 

Where can I get equity release advice?

Equity release advice is available from an array of financial firms in the UK. It’s best to seek equity release advice from a company that specialises in this area of finance, rather than a generic adviser who doesn’t deal with equity release products frequently. 

How much should I expect to pay for equity release advice?

Some advisers will charge around 2% of your total loan for their help. For example, if you take out £50,000 in home equity, expect to pay around £1,000 in fees for the advice you receive. Others charge a fixed fee rather than basing it as a percentage of your loan. The average fixed fee is around £1,000 also. 

There are other fees to consider, such as legal costs and home valuation fees. Expect to pay around £3,000 in total for all services relating to equity release. 

Do I pay tax on equity release?

Because you don’t repay your equity release lump sum or drawdown with monthly repayments, it can feel as though the money is not a loan. But it is.

Loan money is not subject to income tax or Capital Gains Tax, and therefore no tax is due on the money from a lifetime mortgage or home reversion plan. 

Can I move home with a lifetime mortgage?

As previously mentioned, anybody with a lifetime mortgage through a lender that is a member of the Equity Release Council should allow you to move to a different suitable property and take your lifetime mortgage with you. This is easily done if the new property is of equal or higher value, and will be just as easy to sell on the housing market.

But if the home is less valuable or not as easy to sell (due to location or uniqueness) then the process can be more complex. You may be asked to pay off some of your lifetime mortgage to downsize to a smaller home. By paying some of it off earlier than agreed, you may also be hit with hefty early repayment costs. 

It’s really important to explain your plans to downsize in the future when you receive equity release financial advice. The adviser may be able to source agreements that help you avoid any early repayment costs when you downsize, known as a downsizing clause. 

Will equity release affect my state pension?

Releasing equity will not affect your entitlement to a standard state pension. However, some people receive an additional pension top-up payment called pension credits. Pension credits are means-tested, which means the amount you receive is based on your finances. If you release equity and your savings increase, your entitlement to pension credits can be taken away or the amount you receive can be reduced. 

At the time of writing, for every £500 you have saved above £10,000, your pension credit payments are deducted by £1. If all of your pension credits are taken away due to your new savings, you can also lose entitlement to means-tested benefits elsewhere. For example, no longer receiving pension credits can remove your right to receive a council tax reduction. 

An independent financial adviser should explain this in further detail to you. They may suggest using a drawdown lifetime mortgage instead so you can reduce the amount you have saved at any given time and continue to receive benefit payments. 

Is there a better alternative to equity release?

If a lifetime mortgage isn’t the way you want to turn, there are still other ways to get cash in later life. 

One way that doesn’t involve any creditors or loans is to simply downsize to a smaller home. By selling your current home and using some of the money to buy a smaller and less valuable one, you could create a pot of money to help fund your retirement plans. 

More guidance on equity release

For more guidance on equity release in the UK, look no further than MoneyNerd. We have plenty of new and free articles discussing the details of releasing equity for retirement here.