What Is 100% Equity Release? Overview & FAQs

Are you curious about a 100% equity release? This article is here to help you understand it better. We know it's a big decision and can be confusing, but don't worry; we're here to help.

In this article, we’ll explain:

• What 100% equity release is.
• How you can get a realistic quote.
• The pros and cons of equity release.
• If you can really get 100% equity release.
• What happens after you choose equity release.

It’s normal to worry about big decisions, especially when it’s about your home. You might be asking, “Can I lose my house?” or “What happens after I’m gone?”. We understand these worries, and we’ll answer these questions too.

Remember, we’re here to guide you. We have a lot of experience in helping people like you understand equity release. So, take a deep breath, and let’s dive in.

How exactly does equity release work?

There are two legally distinct main types: lifetime mortgages are secured loans, while home reversion plans sell property rights.

A lifetime mortgage is a loan secured on your home; you retain ownership. Interest that is not paid is added to the balance. The loan is usually settled when the last borrower dies or moves permanently into care, subject to the contract. Required or optional repayments vary by product. A home reversion plan is a sale of part or all of your home, usually below open-market value, in return for money and the right to remain under the plan’s occupancy terms. It is not a loan. The provider receives its agreed share when the home is sold.

Lifetime mortgages

Many lifetime mortgages allow interest to roll up without regular payments, but some require interest payments for a set period. Optional repayments, limits and any early-repayment charges depend on the contract. Rolled-up interest can grow substantially depending on rate, fees, duration and repayments.

Home reversion plans

A home reversion plan is a sale of part or all of your home, usually below open-market value, in return for money and the right to remain under the plan’s occupancy terms. It is not a loan. The provider receives its agreed share when the home is sold.

What are 100% equity release schemes?

Receiving 100% of a home’s open-market value is different from selling 100% of its ownership. Home reversion may sell the whole property below market value while allowing continued occupation.

Can you get 100% equity release?

But do not expect to be allowed to release 100% of your equity through a lifetime mortgage. Because the lender is relying on the property sale to repay the debt, they run the risk of not making a profit from the future property sale if they loan the homeowner all of its value and the property value remains the same or decreases. 

A qualifying no-negative-equity guarantee is conditional and limits repayment from net sale proceeds. It does not establish that a lender will advance the full property value or cancel all interest.

Selling 100% of the home through a reversion plan does not mean receiving 100% of its open-market value. Continued occupancy is reflected in a discounted purchase price; do not assume expected house-price growth creates a full-value offer.

How much equity can you release with a lifetime mortgage?

The maximum lifetime-mortgage advance depends on age, property, product and current criteria. It is not a universal 60% or £120,000 limit for a £200,000 home.

Some providers consider health and lifestyle and may offer different terms. Medical questions or evidence requirements depend on the provider; an enhanced advance is not guaranteed.

What is the catch with equity release?

Compare the actual loan projection or reversion purchase price and share sold. These different cost structures can reduce future equity substantially.

The cost of equity release may not be a concern for many people who do not have children to leave their estate to, but if you have estate beneficiaries who would benefit from your wealth, the decision can be difficult. 

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

A home reversion provider assesses the cash price for the share purchased. There is no universal 80% cash limit, and selling the whole ownership means no property share remains in the estate under that plan.

What determines how much equity you can release?

The lender will look at multiple factors to determine how much equity you can release with either equity release products. They will analyse:

1. Your age – and your health in the case of an enhanced form of equity release. Older people may be able to access more equity because they are deemed to have a shorter life expectancy, even though this may not be true. 
2. Details about the property. The property value, location, projected value, and other details can also contribute to how much equity the lender is willing to let you take out. 

What are the pitfalls of equity release?

The biggest pitfall of equity release is using a plan when there are better options for your circumstances. It’s essential to use an independent financial adviser who is authorised and regulated by the Financial Conduct Authority (FCA). Some equity release companies will offer their own financial advice, but it is highly recommended to use independent services to ensure you are not mis-sold equity release. 

Another potential pitfall of equity release is using a lender that is not a member of the Equity Release Council (ERC)l. That is not to say that all lenders who are not members of the ERC are bad and should be avoided, but choosing an ERC member offers guarantees and assurances. 

The Equity Release Council (ERC) and its benefits

The ERC is a voluntary membership group that welcomes equity release lenders and financial services companies to join. If they do join, they must abide by the group’s rules and guidelines designed to protect homeowners, which ultimately makes them more appealing to those homeowners. 

Some of the benefits of choosing an ERC lender over other lenders are:

1. A conditional right to remain while meeting the plan’s terms.
2. A qualifying no-negative-equity guarantee for lifetime mortgages, subject to sale and other conditions.
3. A conditional ability to move to a property the provider accepts, potentially with partial repayment and costs.

Does equity release affect state benefits?

Means-tested benefits assess income and capital. Universal Credit normally has a £16,000 upper capital limit, subject to disregards and other rules.

The State Pension is not means-tested. For Pension Credit, savings above £10,000 generally count as £1 weekly income per £500 or part, with entitlement determined by the full assessment.

Releasing equity could mean not being eligible to receive any Pension Credits or other benefits. This can have a knock-on effect on your eligibility to receive other state benefits. For example, not receiving Pension Credits could stop a council tax reduction benefit. 

Obtain benefits advice before choosing drawdown, spending or gifting; none guarantees continued eligibility.

Do you pay tax on equity release?

A lifetime-mortgage advance is borrowed capital. Home reversion is a property sale, and later income, gains or gifts can have separate tax consequences.

An alternative to equity release

An alternative option to equity release with no borrowing required is to downsize your home to a smaller and less valuable property. This could be difficult due to the stresses of moving and the sentimental attachment to your current home, but it could also create a financial cushion for your retirement. 

By selling your home and buying a less valuable one, you create a pool of money that can help fund retirement, care services, home improvements and more. 

Why can’t you get 100% equity release (Quick recap!)

A home reversion may involve selling 100% of the property, but usually for less than its open-market value because of retained occupancy rights. It should not be described as a 100% equity loan.

Compare the cash received, ownership retained, legal terms and long-term costs. Expected property-price growth does not create a guaranteed full-value equity-release product.