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Equity Release Companies – Best Options Reviewed 2022

Equity Release Companies

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 companies in the UK? 

This question has been asked scores of times by our readers who are considering equity release. In this new guide, we discuss the details of equity release – including lifetime mortgages – and then look at some of the equity release companies and banks to consider getting your lifetime mortgage or home reversion plan from. 

Always do your own research and get financial advice before making a decision. Let’s get into it! 

What is equity release?

Equity release refers to two types of financial products available to senior homeowners in the UK. These financial products allow the homeowner to take out a secured loan against their property and not have to make monthly repayments to repay the debt. The two types of equity release plans available are called lifetime mortgages and home reversion schemes. 

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How does equity release work?

Most elderly people cannot get approved for personal loans because of their age, but they can use an equity release plan to borrow money. 

These loans do not require the homeowner to make any monthly repayments, and instead, the debt is repaid through the money raised from the sale of the homeowner’s property, either:

  1. After they die and the property is sold from their estate.
  2. Or after they move out of the home and into long-term care. 

Who can use equity release?

Equity release is available to people above the age of 55. If you want an equity release plan as a joint couple and homeowners, the youngest person of the pair must be at least 55 years old.

Although there might be a limited number of lifetime mortgage providers offering lifetime mortgages for second homes, the bulk of the market will require the homeowner to be taking equity from their main residence, and that main residence must have a minimum valuation set by the lender. At the time of writing, this valuation is typically around £70,000.

The last common requirement to be eligible to apply for a lifetime mortgage or home reversion equity release plan is that you have already cleared your mortgage and have no other debts secured by your home. A handful of lenders might allow you to take out their equity release products with a small residential mortgage outstanding, but your mortgage debt may have to be paid off with some of the money you receive as a condition. 

The above criteria just makes you eligible to apply. The lender will then assess you and your property to decide whether the t can offer you equity release. 

What is equity release used for?

Because equity release plans are exclusively available to people over 55, they are used to access a lump sum or drawdown facility that can help fund their retirement and improve the quality of life in their later years. Some people may just use the money to pay for everyday expenses and make their life more comfortable, while some earmark the money for home improvements, holidays, new cars and so on. 

You are allowed to give some or all of your equity release money away to friends and family, which may go towards helping them get on the property ladder themselves. You do however need to be aware of any potential inheritance tax implications when gifting money

This should be discussed with your financial adviser, but any financial gifts given within the seven years before you die can be subject to inheritance tax.

Lifetime mortgage vs home reversion plan

As mentioned, there are two types of equity release options in the UK, namely a lifetime mortgage or home reversion plan. Both of these can be offered as a cash lump sum or drawdown, which is why you may find them advertised slightly differently, e.g., lifetime mortgage vs drawdown lifetime mortgage.

 Lifetime mortgages tend to have even more variations in names, as you can also find specialist lifetime mortgages aimed at people with shorter-than-standard life expectancies for their age; these are called enhanced lifetime mortgages. 

A lifetime mortgage works by providing you with a tax-free lump sum or drawdown up to 60% of the value of their home equity, and because the mortgage will need to have been paid off, this means up to 60% of the value of your property. The loan is subject to a fixed interest rate for the entirety of the agreement. The interest, alike the loan capital, does not need to be repaid through monthly payments, and the interest will roll up and add to the total debt instead. 

When it comes to selling the property to repay the debt, either after the last surviving homeowner has died or has moved into care, the new total debt with the interest added will be recovered from the sale proceeds. 

Home reversion schemes do not add any interest to the loan amount. From the outset of the agreement, they require the homeowner to agree to give the lender a fixed percentage of the proceeds from the future property sale. Again, the sale will only occur after death or moving into long-term care. 

This fixed percentage of the future sale will be much greater than the percentage of the property equity taken out as a loan, guaranteeing a large profit for the equity release company, and even more so if the property value increases. 

What is the best type of equity release?

It is not possible to say which type of equity release is the better option, as it will be determined by personal circumstances. This is why it is important to get independent financial advice before making a decision. 

Although it is not possible to say what is the best type of equity release for everyone, lifetime mortgages are notably more popular than home reversion plans. This may be due to a number of factors, not least that home reversion plans are instantly expensive compared to how a lifetime mortgage debt builds up over time.

Moreover, many lifetime mortgage providers allow the homeowner to make voluntary interest repayments to stop the debt from growing too big. 

What is the catch with equity release?

You should not be caught out by your equity release plan because all the finer details and costs should be fully explained to you when you receive financial advice. If they were not then you may have been mis-sold equity release. 

You can read real stories about seniors being mis-sold equity release right here

Nevertheless, many commentators suggest that the catch with equity release is that it can become excessively expensive – and these people are not wrong. Both a lifetime mortgage and a home reversion plan can more than double the loan amount as a debt.

For example, a lifetime mortgage of £65,000 with an interest rate of 6.4% would equal a debt valued close to £137,000 after just 12 years. Similarly, providers of home reversion plans usually ask for more than double the percentage of sale proceeds. 

This then puts a big dent in what you will pass on to children and loved ones. 

Where do you get equity release?

Equity release is predominantly provided through specific companies that offer either lifetime mortgages, home reversion plans or both. Sometimes these companies offer other financial products or even insurance policies. For example, Aviva is one equity release company in the UK that offers both, as well as other products and services. 

What are lifetime mortgage interest rates?

The interest rates on lifetime mortgages can vary depending on your age and other factors, including your property’s projected value in the future. Average interest rates can therefore range from 2-8% with the most popular equity release companies. 

What is the best equity release company?

Just how there is no way of saying what the best equity release plan is for everybody, there is also no way of saying what the best equity release company is for everyone. 

What the best equity release plan is for you will be based on individual circumstances and based on the time that you apply. This is why you should complete timely research when you are ready to apply. If you are unsure or apprehensive about how to research and apply to equity release companies, you may want to use credit brokerage services that do it for you. There might be a fee for these services. 

You should only consider an equity release company that is a legal lender. 

How to spot legitimate equity release companies

Legal lenders and equity release companies must be authorised and regulated by the Financial Conduct Authority. If they are, they usually state this on their website at the bottom of the page and this information is verifiable online.  

A shortcut to know if an equity release company is authorised and regulated by the FCA is to only use a lender that is a member of the Equity Release Council. 

The Equity Release Council is a group that offers voluntary membership to all financial advisors companies and all equity release companies in the UK. Membership is optional but only available to legitimate and legally-operating companies. 

There are additional reasons to choose a member of the Equity Release Council. All members must follow the rules and guidelines set down by the council, which have been written in the interest of homeowners using lifetime mortgages or home reversion schemes. You can get extra peace of mind and assurances by choosing a member of the Equity Release Council. We take a look at some of the groups’ rules and guidelines later in this guide, including the negative equity guarantee.

Or you can read our dedicated post about the Equity Release Council here

Some equity release companies to consider

The interest rates you are offered will depend on your age, specifics about your home and the lender. It can be difficult to identify the best equity release companies without this information, especially if you want to compare interest rates to find the best deal. Nevertheless, there are other things to consider which make an equity release company worth considering.

Here are five current options in the UK:

#1: LV

LV are a great option if you are concerned about early repayment charges. Between 0-5 years the charge is just 5%, decreasing to 3% thereafter until after 10 years when all fees are wiped for repaying early. 

#2: More 2 Life

More to Life offers one of the most flexible plans on the market. They have some of the lowest early repayment charges and no fees will be applied for early repayment after ten years. They also allow you to downsize with no substantial fees and let homeowners add or remove names from the plan with minimum fuss. 

#3: One Family

One Family is known for providing great customer service. They also offer financial advice at a fixed price, which is somewhat rare with most companies charging a percentage of your loan. This could be advantageous if you plan to release a lot of equity. 

#4: Legal & General

Legal & General are an option for people who want to release astronomical amounts of equity on expensive property. Their equity release plans are available to provide loans up to £2 million. 

#5: Aviva

Aviva is a household UK name and has lots of positive reviews, but one thing to watch out for is their expensive early repayment charges which are at 25% at the time of writing. 

Are there any banks that do equity release?

Yes, there are high-street UK banks that offer equity release to seniors. At the time of writing a handful of banks are advertising lifetime mortgage equity release on their site. 

For example, Nationwide offers a lifetime mortgage which comes with free financial advice and £1,000 cashback which could be used on any legal costs involved to set up the lifetime mortgage. 

Banks may include an equity release calculator on their site to help you understand the projected costs of equity release. This can be helpful but not 100% accurate for everyone. 

How long does it take to get equity release?

On average, it takes around eight weeks to make your application and get approved for equity release. The process can be lengthy because it involves a re-evaluation of your property, specialist equity release advice and legal services. 

What are the advantages of equity release?

The primary benefits of using equity release are:

  1. The money you receive is tax-free cash
  2. You can get a cash lump sum or drawdown
  3. You make no monthly payments, but you can volunteer monthly payments on a lifetime mortgage if preferred
  4. Modern plans come with downsizing protection, as illustrated earlier
  5. You continue living at home as normal
  6. The money can be spent on what you want

What are the benefits of using an Equity Release Council?

Earlier we told you about the Equity Release Council and how their members are more appealing because they must stick to the group’s rules that have been made in your interest. Some of the additional benefits of choosing a member of the Equity Release Council are:

  1. The negative equity guarantee – this is probably the most well-known benefit for choosing an Equity Release Council member, although some lenders also agree to provide a negative equity guarantee without being a member. The negative equity guarantee states that the homeowner will never have to pay any outstanding debt that is in excess of the sale proceeds of their home. So if your lifetime mortgage grows beyond the value of your home, no additional money will be requested from you or your estate. 
  1. You can move home – you must be allowed to move to suitable alternative properties when desired. A suitable property would be a home that is just as easy to sell in the future so the equity release company gets its money back.
  1. You cannot be evicted and forced to sell – in no normal circumstances can the equity release company evict you and sell your home early to recover the debt. This is a big concern to most people considering equity release. The only time the lender may be allowed to ask you to sell and pay the debt early is if you have lied on your application or have stopped living at the property but are hiding this fact. 

Does a lifetime mortgage affect your state pension?

When you take out a lifetime mortgage and receive a tax-free lump sum amount, your wealth instantly increases, which can make you ineligible for some means-tested state benefits. The good news is that your state pension is not means-tested and you will carry on receiving the basic state pension payments no matter how much you have in the bank.

However, pension credit payments that are given to low-income households may be affected by any new-found wealth from your lifetime mortgage. Your payments may decrease or may be stopped. And if you lose access to pension credits, you may simultaneously lose access to other benefits, including council tax reductions.

There may be ways to stop your lifetime mortgage from having a negative impact on means-tested benefits, such as choosing a drawdown lifetime mortgage so your finances don’t grow as significantly at once and might keep your new wealth below the relevant thresholds.  

Want to know more about equity release companies (UK)?

If you need more information on releasing equity, interest rates and the potential pitfalls of these secured loans, look no further than MoneyNerd. We are the go-to place for bitesize information on equity release and related topics. 

Join us again as we discuss an equity release calculator, the benefits of using a lifetime mortgage, alternative solutions and much more!