23/04/2021

8 mins

Equity Release Explained

Equity Release is a way of taking money out of your home. People do so for a number of reasons. This could be to help fund retirement, adapt a home to meet reduced mobility needs, pay for care or even for inheritance tax planning.

There are two main ways to release equity from your home: Lifetime Mortgages and Home Reversion Plans. Of these, Lifetime Mortgages are the most common by a considerable margin.

Whether you opt for a Lifetime Mortgage or a Home Reversion Plan, you retain the right to live rent-free in the property until you sell the home. This will typically be after you pass away or need to move into long-term care.

The process of releasing equity from your house will involve getting advice from a range of experts, from financial advisers to solicitors and conveyancers, and generally begins with a conversation with an independent adviser specialising in Equity Release to check that it’s right for you.

Lifetime Mortgages

A Lifetime Mortgage, also known as an Equity Release Mortgage, involves you borrowing against the value of your home.

How much you can borrow depends on a number of factors, including your age, state of health and the value of your home.

Unlike a regular mortgage, you don’t have to make any repayments on your loan during your lifetime if you don’t want to. In this case, the amount of interest you owe is ‘rolled up’ into the total value of your loan and you repay it all at once when your house is sold.

Casey Goodwin, Wealth & Pensions Administrator at Drewberry

Interest rates on Lifetime Mortgages tend to be higher than on regular mortgages, so rolling up interest can become expensive and significantly reduce the size of the estate you have to leave beneficiaries. However, some providers allow you to make ad hoc or regular interest payments to keep a lid on the cost of Equity Release. Ask your adviser about these plans to see if they might be right for you.

Casey Goodwin
Wealth & Pensions Administrator at Drewberry

You can opt to take the money from Equity Release all in one lump sum or instead draw it down gradually as an income when you require it. The latter limits the interest you’ll have to pay on a Lifetime Mortgage as you only pay interest on the outstanding balance.

Home Reversion Plans

With a Home Reversion Plan, you sell all or some of your property to a provider for less than the market value. When your home is later sold on the open market, you repay the proportion of the equity in your home you released from the proceeds of the sale.

For instance, if you sold 50% of your home with a Home Reversion Plan, you own half and the provider owns the other half of your home. When the house is sold, you get half the sale proceeds and the other half goes to the provider.

How Does Equity Release Work?

The below is a simplified process, although it can be quite a complicated affair. This is largely because it’s a big financial commitment that will affect not just your life but the life of any beneficiaries, so everyone wants to make sure you’re making the right decision.

Often a provider will have preferred specialists, such as solicitors, you can turn to for advice, but there’s no reason you can’t shop around to find a more competitive quote for such services.

Find a specialist Equity Release adviser
The first step is to find a financial adviser and receive independent advice to find out if it’s the best option for you.
Receive a Key Facts Illustration and Initial Disclosure Document
If Equity Release is right for you, your adviser will provide you with these documents summarising everything you need to know about the plan.
Apply for Equity Release
Your adviser will help you with a form which will go to your provider.
Find an Equity Release solicitor
To complete all the required legal work for the contract between you and theprovider and act as a conveyancer.
Get your home valued professionally
Providers will require your home to be professionally valued by a qualified surveyor from the Royal Institute of Chartered Surveyors (RICS).
Confirm how much you can borrow
The professional valuation allows the provider to officially confirm how much you can borrow. The solicitor will set this out in an offer letter.
Receive a written report from your solicitor
Your solicitor will usually write up a report outlining the pros and cons of Equity Release in your circumstances. According to rules laid out by the Equity Release Council, you must have at least one face-to-face meeting with the solicitor who wrote this letter so you’re confident you understand the details.
Sign both an acceptance form and an Equity Release Council solicitor’s certificate.
Undertake the final legal checks
These will tie up the last loose end, such as checking the title deeds of your property before the provider transfers the money to your solicitor.

The typical turnaround time for Equity Release is between 8 and 12 weeks, although it could take longer depending on the various parties involved.

Equity Release Help and Advice

Getting independent advice is an essential part of releasing cash from your property. An independent adviser can look at the entire market to find you the best Equity Release deal, as well as looking at your finances to check your suitability and your overall financial position.

Equity Release isn’t the right option for everyone, so discussions with an adviser are an important part of the Equity Release process. They might be able to suggest alternate means of releasing capital, from drawing down savings and investments to selling up and moving to a smaller property.

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.