Equity Release lets you withdraw cash from one of your biggest assets: your home.
However, this option isn’t available to everyone. This guide explains who can use Equity Release, including the criteria that must be met before taking equity from your home.
There are three specific elements that must be present:
You’ve also got to consider the impact your decision will have on other people. Equity Release will cut the amount you can leave behind from your home, reducing your loved ones’ inheritance.
So when asking if you can use Equity Release, think how you want your estate to be divided after you pass away and what you want to leave behind.
The minimum home value usually acceptable to Equity Release providers is £70,000, although some providers will have a higher figure. It’s unlikely you’ll be able to release equity if your home is worth less than this.
While this property value tends to be the minimum requirement, in most cases UK homes are worth notably more than this so, providing you live in an ‘approved’ structure for Equity Release, you’ll typically have sufficient equity in your home to unlock.
The age limit on Equity Release is slightly different depending on which option you choose.
With a Lifetime Mortgage, you borrow against the value of your home. Unlike a regular mortgage, you don’t have to make monthly payments if you don’t want to. In such circumstances, the interest is rolled up into the plan.
You have the right to stay in your home completely rent-free until you pass away or move into care. At this point, the home is sold and the Equity Release provider is repaid from the sale price, including interest if you’ve rolled it up.
You must be at least 55 if you want to use an Equity Release Lifetime Mortgage.
With a Home Reversion Plan, you sell part of your property to your provider for less than the market rate. You retain the right to live in the property rent-free for the rest of your life (or until you move into care). However, you no longer own the entirety of your home.
Home Reversion plans make up only a tiny minority of the Equity Release market, with the vast majority of clients opting for Lifetime Mortgages.
At the end of a Home Reversion Plan, you sell the home and the profit is shared between you and the provider according to the proportions of ownership.
For Home Reversion Equity Release, the minimum age is 60.
While the industry standard minimum age is 55 for Lifetime Mortgages and 60 for a Home Reversion Plan, you may find that the age limit imposed by different providers will be higher than this. Some Equity Release companies prefer to deal with older clients, to whom they’ll be able to release greater amounts of equity.
Most types of property are eligible for Equity Release, although the provider will want to be sure they can sell the property later on the open market.
As a result, there are restrictions on certain types of homes that are eligible for Equity Release. Being able to sell the property easily on the open market benefits both you and the provider, as it maximises the value you both receive from your property.
Properties typically ineligible for Equity Release include:
As well as checking whether your property is eligible for Equity Release, your provider may ask you questions about your home’s construction. This might include building materials and age of the property.
If you’re unsure whether your property is eligible for Equity Release, contact your provider / adviser for more information.
Yes, you can use Equity Release if you already have a mortgage, providing you clear your remaining mortgage upon completion. Many people turn to Equity Release for just this reason.
While this will reduce what the sum you’ll receive from releasing equity, without any required mortgage payments you may see an increase in your disposable income.
Some people use Equity Release to help their families, whether this is with getting on the property ladder or with education costs (e.g. university fees). However, releasing equity now to help your children will mean it won’t be available to you later when you might need it to pay for care.
It’s essential you understand that Equity Release could significantly reduce the amount you can leave your family from your property. This is especially the case with Lifetime Mortgages where you roll the interest up, as with compounding the amount you owe can grow quite quickly.
We recommend including your family in discussions about Equity Release so they’re aware about your decision. This might involve them sitting down with you and your financial adviser / solicitor.
Jonathan Cooper
Senior Paraplanner at Drewberry
If you live with a partner / spouse and you’re both of eligible age, you might be able to take out joint Equity Release where you’ll both be named on the plan.
In this case, if one of you passes away or needs to move into care the remaining partner doesn’t have to leave the home. They can stay in it for as long as they live or until they move into care. At this point, the house is sold and the proceeds divided depending on the nature of your Equity Release plan.
If you live with anyone other than a partner, such as a child or tenant, you’ll likely find that the Equity Release provider will want them to sign a waiver where they promise to move out of the home in the event of your death or you moving to long-term care.
The waiver allows the house to be sold and the Equity Release plan to be repaid soon after the person named on the Equity Release plan vacates the property.
If there are any other occupants of your home, the Equity Release provider may insist that they receive separate independent legal advice to that you receive. This ensures they understand the implications of their tenancy if you pass away or move into long-term care.
Whether or not Equity Release is right for you will depend on your circumstances. It’s important you consider all your options before releasing equity from your home as it’s designed to be a long-term option. This means it’s tricky to undo once you go down this route, at least often not without paying hefty early repayment fees.
Given how big a decision Equity Release represents, that’s why it’s so important that you receive independent, unbiased financial advice.
Speaking with an adviser who’s an expert in Equity Release is so important before you consider withdrawing cash from your home. They’ll look at your entire financial situation in the round and take into account your circumstances to make sure it’s the right decision for you.
Casey Goodwin
Paraplanner at Drewberry
Before releasing equity from your home, consider whether you have other savings or assets to draw on. You may also consider downsizing to a smaller property, although this comes with all the hassle and costs of moving.
Drewberry has partnered with the trusted Equity Release Provider Responsible Life to offer our clients access to the best Equity Release Advice.
Responsible Equity Release was founded in 2010 and is part of the Equity Release Council. It is also authorised and regulated by the Financial Conduct Authority and is one of the largest UK equity release advisers, with access to every single provider across the marketplace. 99% of its reviews on independent reviews website Trustpilot are listed as 5-star.
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