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Equity Release for Over 60s – Detailed guide

Equity Release Over 60s

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

Uncover everything you need to know about equity release for over 60s here. We discuss how over 60s can still get a secured loan against their home equity – and they won’t even be required to make monthly payments to repay the debt. If you’re over 60 and want to release equity on your main residence, you should hear this! 

What is equity release?

Equity release products are ways for homeowners in later life to get a secured loan using their home equity. Unlike other loans – including home equity loans – equity release does not require the homeowner to pay back the money each month. Even when interest is added to the loan, the interest doesn’t have to be paid back monthly either. 

The debt is only repaid when the homeowner dies or moves into care through the sale of their property. The sale proceeds are first used to repay the lender and anything remaining is kept by the homeowner or to their estate beneficiaries (if they have died). 

There are two types of equity release in the UK called a lifetime mortgage or a home reversion scheme. If you are considering either of these products you will have to get financial advice first from a company that is authorised and regulated by the Financial Conduct Authority. 

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What is the catch with equity release?

Getting a large loan and not having to make any monthly repayments sounds too good to be true, especially if the debt is only repaid after you die. But the catch with equity release is that the amount you pay back can be a lot more than the loan you take out. Often the debt doubles or more, depending on the time between taking out the loan and when it has to be repaid. 

This has a knock-on effect on the estate you leave behind for family and friends. By using equity release, the inheritance your loved ones will receive can be substantially less, which makes it a harder decision for those with children who would seriously benefit from your full estate. 

Lifetime mortgages explained

Lifetime mortgages are the most common method of equity release by seniors in the UK. Using a lifetime mortgage will allow the homeowner to access some of their equity as a lump sum or drawdown. The loan is subject to a fixed interest rate for the entirety of the loan term, i.e., until you die or move into care. 

The interest does not need to be repaid but keeps rolling up and adding to the total debt each month. Lifetime mortgages can become expensive for this reason, which is why some people choose to make voluntary monthly interest repayments to keep their debt down. Don’t confuse only repaying the interest on a lifetime mortgage with an interest-only mortgage, which is also used by seniors. 

How much equity can you release with a lifetime mortgage?

Because the lender wants to make a profit on the credit agreement, you will not be allowed to borrow a loan equal to all of your home equity. Most lifetime mortgages will allow the homeowner to get a loan equal to around 60% of their equity in a best-case scenario. 

Home reversion plans explained

Home reversion plans are not as common as lifetime mortgages, but they remain available to UK seniors. They give the homeowner a loan that does not need to be repaid until death or after moving into aged care, and it is also not charged with any interest whatsoever. The lender makes a profit on the agreement by getting the homeowner to agree to give them a greater percentage of the property’s future sale proceeds.

For example, you might own a £220,000 property and ask for a 30% equity loan giving you £66,000. A decade later you may need to move into care and sell your property which is not worth £250,000 and give the lender 60% of the sale proceeds. So, your £66,000 loan will cost you £150,000 ten years later. 

How much equity can you release with a home reversion plan?

Most home reversion plans allow the homeowner to access a lump sum or drawdown valued at 80% of their home equity at most. 

There may be some lenders able to provide 100% home reversion plans, but this will only be when the lender knows the property will surge in value. They are rare. 

Who qualifies for equity release?

To qualify for equity release you must be releasing equity from your main residence rather than a rental investment or UK holiday property. There should be no existing mortgage on the property or any other secured loans. 

There may be a minimum property value applied that is decided by the lender. And they will complete checks on the property to ensure it meets building standards and other criteria. 

Is there an age limit for equity release?

This is a type of equity release exclusively available to “senior” homeowners. You must be aged 55 or over to get a lifetime mortgage or any other equity release product. If you have a property with someone else, such as a spouse or partner, both of you will need to be at least 55 years old to get a lifetime mortgage. 

Sometimes an older couple may have a third person listed on the property deeds, such as a son or daughter. Because equity release is only available to one or two people, these additional names will have to be removed from the property ownership to get a lifetime mortgage. 

There might be some lifetime mortgages that are only available to slightly older people, such as equity release for over 60s or equity release for over 65s. 

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What is the maximum age to get equity release?

There is no maximum age limit on a lifetime mortgage. As long as you are at least 55 years old you will be able to apply for a lifetime mortgage with most applicable lenders.  

Equity release for over 60s

Homeowners over 60 can certainly get a lifetime mortgage with a good number of providers to choose from. By using equity release over the age of 60 rather than at 55, you may get a slightly better deal or be able to release more equity. The older you are generally means you can get better deals. UK money expert, Martin Lewis, recommends waiting as long as possible and releasing as little as possible. 

Reasons that over 60s release equity

Most over 60s are close to or are already enjoying their retirement. Taking out a lifetime mortgage at this age will help them to fund their retirement, which can mean different things to each individual. Some over 60s may use the money you pay for general living expenses over many years, others may use the money to renovate their home or pay for annual cruises and holidays. 

Some over 60s may take out a lifetime mortgage and give the money to a family member to help start a new business, and more often than not, to help them buy their own property which is proving more difficult than ever for younger generations. 

What are the benefits of equity release?

The primary benefits of using an equity release scheme to get a loan are:

  1. They are available as a lump sum or a drawdown
  2. You do not make any monthly repayments
  3. You do not have to make any monthly interest repayments on your lifetime mortgage
  4. You can volunteer payments to keep your debt lower
  5. You continue living at your property as normal
  6. The money can be spent on whatever you wish or even given away (possible inheritance tax implications if given away within seven years of your death)

Additional benefits of using an ERC member

It is paramount that homeowners only consider financial advice and lenders that are authorised and regulated by the Financial Conduct Authority. But they should also favour those that are members of the Equity Release Council (ERC).

The Equity Release Council is a group that invites any company in the equity release sector to join – but it is not mandatory. The council has created stringent rules and guidelines that all members must abide by, and these rules keep homeowners assured and protected. 

By choosing an Equity Release Council lender, there are additional benefits of equity release that may not be applied when you use a non-member lender, such as:

  1. You are guaranteed to not be evicted from your home and forced to sell.
  2. You are allowed to move home and take your lifetime mortgage with you when suitable.
  3. The lender commits to the negative equity guarantee, which means you will never have to pay more than the value of your property when it is sold. So if your debt grows beyond the value of your home, you never have to pay the shortfall from the rest of your money or estate. 

What are the pitfalls of equity release?

The biggest potential pitfall of using one of these plans is not fully understanding what you are getting involved in and not considering alternative options first. This is why it is mandatory to get equity release advice prior to making a decision and applying. 

It’s better to seek out independent financial advice services rather than just taking up any advice offered directly from the lender. 

What is an enhanced lifetime mortgage?

An enhanced lifetime mortgage is a variation of a regular lifetime mortgage that is used by people with poor health and a shorter life expectancy. If you are expected to die sooner, you could release more equity than standard from your home to help pay for care services and treatments.

The mortgage works in the same way as a regular lifetime mortgage but the application process includes a health and lifestyle questionnaire and the applicant has the opportunity to supply medical records. No additional medical is required. 

Does a lifetime mortgage affect your state pension?

Taking out a lifetime mortgage will not affect your eligibility to receive a state pension. Your state pension is not a means-tested benefit, meaning how much money you have saved up will not affect your entitlement or the amount you receive. 

But means-tested benefits can be affected by using an equity release scheme. If you receive a lump-sum payment, it could push your wealth above the threshold to receive some state benefits. 

For example, Pension Credits are a top-up payment added to some people’s state pension and can be reduced based on your wealth. For every £500 you have saved beyond £10,000 your Pension Credits can be reduced by £1 and you might not even be eligible to receive any payments anymore. 

The story doesn’t end there. If you are no longer eligible to receive Pension Credits, you might have other benefits taken away. Some people only receive a reduction on their council tax bill because they receive Pension Credits, so this could be taken away too. 

If you are worried that you will lose access to some means-tested benefits as part of your equity release, you should discuss this with your financial adviser. There may be ways around the issue, such as using drawdown equity release so you do not push your wealth above the means-tested benefit thresholds. 

Do you pay tax on equity release?

The money you receive as part of an equity release plan is tax-free. Loans in the UK are not subject to any type of taxation, which is why no tax is due on the money received. 

It may feel as though you should be paying tax on the money because it might not feel like a loan – due to no monthly repayments due – but lifetime mortgages are loans. 

Can you be denied equity release?

You can be denied an equity release plan for a number of reasons. You may be denied a plan because you previously had debt arrears and there is a CCJ in your name or charging order on your property. 

But the most common reason for being denied a lifetime mortgage is because your property does not meet building regulations or is considered a risk. This may be due to the way it has been built, the materials used to build it, or if it is at risk of flooding and damage. 

Are you considering releasing equity in later life?

If you are considering either type of equity release discussed in this guide, you should start to engage with a financial adviser. These professionals will help you make the right decision for your needs, answer further queries and help you consider alternative options. 

During your equity release journey, check back on the MoneyNerd site for plenty more equity release content and FAQs answered! 

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