What Is Equity Release and How Does It Work?
Understanding Equity Release
Equity release allows homeowners to borrow against the value of their property. The two main types are:
- Lifetime Mortgages: You retain ownership of your home and can continue to live in it. The loan and interest are repaid when you pass away or move into long-term care.
- Home Reversion Plans: You sell a portion of your home to a provider in exchange for a lump sum or regular payments, while retaining the right to live there rent-free until you pass away or move into care.
Eligibility Criteria
Typically, you must be aged 55 or over, own a property worth a minimum amount (varies by provider), and have no outstanding mortgage or a small mortgage that can be cleared with the release funds.
Why Is Equity Release Gaining Popularity in the UK?
Market Growth and Consumer Confidence
The equity release market has shown resilience, with total lending reaching £2.3 billion in 2024, despite economic challenges. In Q2 2025, lending increased by 10% year-on-year to £636 million, driven by a 40% rise in further advances and a 14% increase in average lump sum amounts.
Demographic Shifts and Financial Needs
An aging population and increasing property values are contributing to the demand for equity release. Homeowners are seeking ways to supplement retirement income, fund home improvements, or assist family members financially.
What Are the Costs and Risks Involved?
Interest Rates and Charges
Interest rates for equity release products have been stabilizing. In Q4 2024, the average annual percentage rate (APR) for new lifetime mortgage products was 6.31%, down from 7.48% a year earlier.
Considerations Before Proceeding
- Impact on Inheritance: The loan and interest are repaid from your estate, which may reduce the amount inherited by your beneficiaries.
- Eligibility for Means-Tested Benefits: Releasing equity may affect your entitlement to certain state benefits.
- Early Repayment Charges: Some plans may have penalties if you repay the loan early or move into long-term care.
How to Choose the Right Equity Release Plan
Assess Your Financial Goals
Determine whether a lump sum or drawdown facility best suits your needs. Drawdown plans allow you to access funds as needed, potentially reducing the amount of interest accrued.
Compare Providers and Products
Consider factors such as interest rates, flexibility, and customer service. The Equity Release Council provides a list of approved providers and advisers.
Seek Professional Advice
Equity release is a significant financial decision. Independent, regulated advice is essential to ensure you understand the implications and choose the best option for your circumstances.
Frequently Asked Questions (FAQs)
1. Will I still own my home?
Yes, with a lifetime mortgage, you retain ownership of your home and can continue to live in it.
2. Can I move home?
You can move, but the new property must meet the lender's criteria. Some plans allow you to transfer the loan to a new property.
3. Will I owe more than my home is worth?
Equity release plans approved by the Equity Release Council include a 'no negative equity' guarantee, ensuring you will never owe more than your home's value.
4. How can I find a reputable adviser?
Use the Equity Release Council's website to find qualified advisers in your area.
Conclusion: Is Equity Release Right for You?
Equity release can be a valuable tool for homeowners looking to access the wealth tied up in their property. It's important to carefully consider your financial goals, seek independent advice, and choose a plan that aligns with your needs. By doing so, you can make an informed decision that supports your financial well-being in later life.