What is equity release?

Equity release with a lifetime mortgage or home reversion plan is a way of taking out some cash from the value of your home, if you're a UK homeowner aged 55 or over, without having to move.

The type of equity release that we offer is a lifetime mortgage. It's a long-term loan secured against the value of your home. You'd borrow a cash lump sum or a smaller lump sum with a cash reserve to draw from as and when you require. You are not required to make any monthly repayments, however you can choose to, subject to terms and conditions. Instead, interest builds up for as long as you have the mortgage and is charged on the total amount borrowed and the interest already added. This quickly increases the amount you owe.

When you (and your partner, if you've taken it out jointly) pass away or need to go into long-term care, subject to our terms and conditions, the loan and any interest that's built up is paid back - normally using money from selling your home.

You need to know that taking out any type of equity release means you will leave a lower inheritance amount behind to loved ones. It may also have a tax impact and affect whether you can still claim certain welfare benefits. You must also take financial advice from a qualified equity release adviser before taking out equity release.

Some common reasons for taking out equity release might be to:

• Adapt your home, so you can continue to live independently
• Renovate or refurnish parts of your home
• Top up your retirement income
• Pay one-off private medical bills, or receive ongoing care at home
• Help children and grandchildren with house deposits, weddings or other major events
• Manage your estate, wealth and tax planning, and leave a living inheritance
• Pay off an outstanding mortgage, including the shortfall on an interest-only mortgage
• Fund leisure interests, a new car, a holiday, or visiting relatives abroad.

You can borrow a one-off cash sum, from £15,000. This might be used for something specific, such as topping up your retirement income, or helping your child put a deposit down on a property.

Or you can borrow an initial lump sum, from £10,000 and set up a cash reserve of at least £5,000 to draw money from when you choose. You’ll only pay interest on money you take out of your cash reserve – not on the amount left in it. Interest also builds up on your original lump sum and on any interest that’s already been added. The financial advice you take when setting up the initial loan also covers the money held in your reserve, so you can take money from your reserve without having to get additional financial advice.

Equity release isn’t right for everybody and every home, so it depends on you and your circumstances.

You could be eligible for a lifetime mortgage if:

• You’re a homeowner aged 55 or over. If you own the property jointly (if you're married, in a civil partnership, or cohabiting), then you'll both need to be 55 or over
• You live permanently in your home. The property must be your main residence and not unoccupied for more than 6 months at any one time
• You're mortgage-free or only have a small mortgage. Your remaining mortgage will have to be paid off as a condition of taking out our lifetime mortgage. You can do this from the amount you borrow
• Your property is in the UK (not including the Channel Islands or Isle of Man) and worth at least £75,000. If you've got a leasehold property, we'll work out how much you can borrow based on the number of years you've got left on your lease and a percentage of your property valuation. We have lending criteria that help us to decide what properties we will accept
• You want to borrow at least £15,000 and the value of your property makes this possible.

If you'd like a no-obligation chat about our lifetime mortgage and how it might work in your circumstances, call us on 0800 141 3493.

For most people, their home is the most valuable thing they own, which is why they might look to use it to raise some cash. Making use of its value, if you’d prefer not to move, may boil down to a decision between a remortgage or equity release. 

Otherwise you could sell up, buy somewhere cheaper and pocket the difference – whether you downsize or move to an area where house prices are lower. Make sure you factor in all the moving costs, though, like stamp duty and solicitors' fees. Staying put and getting a lodger may also be an option, as long as you have a spare room and you're comfortable with the idea. Just be aware that someone paying you rent might affect your tax position or eligibility for certain welfare benefits.

If you have money in pensions, savings or investments, it’s also worth considering whether these could be a better way of funding your future plans than equity release. There are costs and risks involved in freeing up cash through a lifetime mortgage, so reviewing different options with a financial adviser must be a key part of your decision-making process.

It’s important to look at everything before you apply for our lifetime mortgage – the great bits and the not-so good things.

Here are a few reasons why you might choose a lifetime mortgage:

• You’ll continue to own and live in your home.
• You’ll receive a cash lump sum, and may be able to release further cash in the future, subject to terms and conditions.
• A ‘no negative equity’ guarantee means that neither you nor your estate will ever have to pay back more than your property is sold for, as long as it’s sold for the best price reasonably obtainable, subject to terms and conditions.
• An optional inheritance guarantee allows you to set aside a percentage of your home's value to leave as an inheritance, although this will reduce the amount you're able to borrow and will still reduce the amount you can leave as inheritance.
• A voluntary partial repayment feature allows you to make limited repayments during the term of your lifetime mortgage, subject to terms and conditions. This can be a great way to help reduce the amount owed over time.
• Downsizing protection can help if you want to move and apply to transfer your lifetime mortgage to a new property that doesn’t meet our current lending criteria. If you're eligible, you can repay the lifetime mortgage with no early repayment charge if you have held your lifetime mortgage for at least three years.

Here are some things to keep front of mind while you decide if a lifetime mortgage is right for you. 

• Leaving less behind. Paying off the money you've released (plus any interest) will still leave a smaller inheritance, even if you set aside part of your home's value.
• You'll pay a lot in interest. We add interest to your loan and the interest already added each year, so your debt grows quickly.
• Taxes and benefits might be affected. A lifetime mortgage could have tax implications or affect your eligibility for welfare benefits. Your equity release adviser will talk you through it all.
• You're making a lifetime commitment. If life changes and you want to pay off your equity release earlier, you may have to pay a high early repayment charge.