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Equity Release Schemes for Over 55s Reviews & In-depth Info

Equity Release Over 55

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

“Equity release for over 55” is a popular search online because so many seniors want to know if they can release equity without taking out a home equity loan, which is usually not available to older people nearing retirement. The good news is they can – and we’re here to discuss the details.

What is equity release?

Equity release is a way of accessing some of your home equity as a drawdown facility (regular income) or as a cash lump sum. The money you receive is not repaid each month like other loans and credit. 

Instead, the loan is repaid when the property is sold. You can only be forced to sell your home and repay the debt when you move into long-term aged care. If you do not need to move into a care facility, the loan is repaid from the sale of the home after death. It can create a conundrum if you have family members who would significantly benefit from the value of your estate. 

There are two main types of equity release called lifetime mortgages or home reversion plans. Both of these equity release products are explained in detail later in this guide. 

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Is there an age limit for equity release?

To use an equity release product in the UK, you will almost certainly need to be at least 55 years old and sometimes older. If the property is owned by a couple, it is the youngest homeowner who must meet the minimum age requirement to apply. 

Along with the age restriction, equity release can only be done on a main residence with no existing mortgage or a very small existing mortgage. Moreover, the property must be of a minimum value set independently by each lender but usually around £75,000. 

What is the maximum age for equity release?

There is no maximum age requirement to use any type of equity release scheme in the UK. In fact, it is recommended to use these schemes as late as possible because the loan will incur less interest by the time it needs to be repaid. Martin Lewis is quoted on TV as saying to borrow “as little as possible as late as possible”. 

What is the catch with equity release?

Before using a lifetime mortgage or other plan, you should engage a financial advisor that is authorised and regulated by the Financial Conduct Authority. They should fully explain the pros, cons and costs of a plan so you are fully aware of what you might agree to. By doing this, there should be no catch.

However, receiving a lump sum to spend on your retirement without having to make monthly payments can sound too good to be true. This is why some people consider the catch of equity release as how expensive it can become. For example, having a lifetime mortgage for over a decade can easily double your debt. We explain how below. 

Equity release for over 55s in detail

As mentioned, there are two ways to complete equity release as an over 55. Lifetime mortgages do have some variations and are more common, but home reversion plans are also still an option. Learn about them both below. 

  1. Lifetime mortgage

A lifetime mortgage provides a loan based on your home equity and is charged with a fixed interest rate for the lifetime of the mortgage (and possibly your lifetime). The interest is not repaid but rolls up, making the total debt bigger over time. 

A £65,000 lifetime mortgage charged at 6.4% over 12 years can grow close to a £137,000 debt. This is only repaid from the property sale after you die or move into care. Some people choose to volunteer interest repayments to keep the debt down. 

  1. Home reversion plan

Unlike lifetime mortgages, home reversion plans do not charge interest. The homeowner must agree to give up a fixed percentage of the property’s future sale proceeds in exchange for some home equity as a lump sum or drawdown. The amount you repay can be double or triple what is taken out. 

For example, releasing £50,000 on a £150,000 home could mean giving up 60% of the future value of the home, which may have also increased (or decreased!). 

What is the Equity Release Council?

The Equity Release Council is a membership body that invites advisers and lenders working in equity release to join and follow the group’s rules and guidelines. They must be legitimate companies to join, meaning they must already be authorised and regulated by the Financial Conduct Authority. 

The rules are made to protect senior homeowners, so it can be beneficial to choose a lender that has a membership. For example, they must commit to the negative equity guarantee. The negative equity guarantee states that if the lifetime mortgage debt grows beyond the value of the home, the debtor does not need to repay any more than what the home sells for. 

How much equity can you release at 55?

Most lifetime mortgage lenders will only allow homeowners to release up to 60% equity at most. What you can release will be based on details of the property and your age. The older you are the more you can release. 

Thus, if you only just qualify for equity release at 55 years old, you might only be able to release 10-40% equity in many cases. However, if you have a terminal illness, you could use an enhanced lifetime mortgage to release more than 60% equity. 

Does equity release affect your state pension?

Releasing equity does not affect your eligibility to receive a state pension, but it can affect your entitlement to pension credits. This is because your savings will increase and for every £500 you have in the bank above £10,000, your pension credits are reduced by £1. No longer receiving pension credits can wipe out your entitlement to other means-tested benefits or even stop you from getting a council tax reduction. 

For this reason, you could benefit from a drawdown facility rather than a lump sum payment from your lender. 

More equity release information 100% free!

MoneyNerd has plenty more guides and articles on lifetime mortgages, the pros and risks now. Read more of our content to get a true understanding of how these plans work.