Equity release is a big financial commitment, so understanding what it would mean for you and your family is really important. Here’s an overview of the key considerations.
How does equity release work?
Equity release is a way of taking out cash from the value of your home, if you’re aged 55 or over, without having to move.
It’s a long-term loan that’s eventually repaid using your home once you pass away, or if you need to go into long-term care. Until then, you’ll remain a homeowner and won’t need to move out.
The type of equity release that we offer is called a lifetime mortgage. You can receive either a one-off lump sum payment or a lump sum, with a cash reserve to draw from in the future.
Why choose equity release?
Some typical 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
What types of lifetime mortgage are there?
We offer two lifetime mortgage options:
- Lifestyle Lump Sum Max: you 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.
- Lifestyle Flexible Option: you 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 only pay interest on the money that you’ve drawn from your cash reserve. The financial advice you take when setting up the initial loan also covers the money held in your reserve, so you can usually take money from your reserve without having to get additional financial advice.
What interest will I pay?
Unlike a regular mortgage, you don’t make any monthly repayments with a lifetime mortgage, and the interest builds up on your loan each year. Interest is charged on the total borrowing and any interest previously added, which quickly increases the amount you owe (compound interest). We add the compound interest to your balance once a year.
So, say you took out a lump sum lifetime mortgage of £30,000 at 4.16% interest. At the end of the first year, the total interest would be £1,248. This would make your outstanding balance £31,248. At the end of the second year, we’d charge 4.16% interest, but we’d calculate it on the closing balance of the previous year, which was £31,248. This would make the interest £1,300. We’d add that to last year’s balance, so you’d now have an outstanding balance of £32,548.
The loan and interest are repaid in full, usually from the sale of your home, when you (and your partner, if you have a joint lifetime mortgage) pass away or go into long-term care.
The interest rate and the amount that you can borrow will be based on your individual circumstances – including your age, health and the current value of your property.
Am I eligible for equity release, and does my home qualify?
Equity release isn’t right for everybody and every home, so it depends on you and your circumstances.
You could be eligible if:
- You’re a homeowner aged 55 or over. If you’re married, in a civil partnership, or cohabiting, you’ll both need to be 55 or over and own the property jointly
- 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. For flats and maisonettes, we only use 85% of the valuation to work out how much you can borrow. 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
Can I repay my lifetime mortgage early?
A lifetime mortgage isn’t designed to be repaid in full before you (and your partner, if you have a joint mortgage) pass away, or move permanently into long-term care.
However, sometimes your circumstances can change, and you might want to repay your loan in full before then. If so, an early repayment charge may apply. We use UK government bonds (gilts) to independently determine what the charge might be. We have a guide to help you understand more about this charge, but if you would like to talk to someone, you can call 0800 158 4177 for a no obligation conversation about your circumstances and to make sure this is right for you.
Our voluntary partial repayment feature allows you to make voluntary partial repayments, with no early repayment charge to pay. This is subject to terms and conditions. The maximum you can repay each year is 10% of the total overall amount you have borrowed from us and the minimum you can repay at each instalment is £50.
How much can I borrow, and will I receive the money all at once?
If you’re eligible for a lifetime mortgage, the amount you can borrow depends on your age, the plan you choose, and the value of your home.
You can receive either a one-off lump-sum payment or a lump sum, with a cash reserve to draw from.
Try our equity release calculator to estimate how much you could release with our lifetime mortgage.
Once you have a lifetime mortgage, you may be able to borrow more money in the future. It depends on the value of your home, how much you’ve already borrowed, the lending criteria, and loan availability at the time. You’ll need to take financial advice and may have to pay for your home to be revalued.
How else could I release the cash I need?
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.
However, if you have money in pensions, savings or investments, it’s worth considering if 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, as well as benefits, and reviewing alternative options with a financial adviser must be a key part of your decision-making process.
Can we take out equity release as a couple?
Yes. For a couple taking out equity release, the plan ends when the second person passes away, or when both partners permanently go into long-term care.
The loan is then designed to be repaid, in full, usually from the sale of your property. You continue to own your property until that happens.
What are the benefits of equity release?
Here are a few reasons why you might choose a lifetime mortgage:
- You’ll continue to own and live in your home, and there’s a fixed rate of interest throughout the term of your mortgage
- 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 ensures you can leave an inheritance for your family (if this option is selected)
- A voluntary partial repayment feature lets you pay back some of the money you’ve borrowed
- 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
Is equity release safe?
Entering into a lifetime mortgage (or any form of equity release) is a big decision, and it’s important to understand what it means for you.
You will need to take legal advice and speak to a professional financial adviser first. They will help you decide if it’s right for you, and will consider your overall financial situation and other ways of raising cash available to you, such as downsizing, if you don’t mind moving home.
We’re a longstanding member of the Equity Release Council, a trade body that helps by representing people taking out equity release. You should choose a provider that is a member of the Equity Release Council, take full financial advice from a qualified equity release adviser, who will help you to consider all your options, and appoint a solicitor to act on your behalf.
What about equity release pitfalls for debts, inheritance and tax benefits?
Our lifetime mortgage has a no negative equity guarantee, which means you won't be leaving your loved ones with debt from our lifetime mortgage. Provided your property is sold for the best price it can reasonably get, you and your estate won’t ever have to repay more than the money received from the sale.
Although you can safeguard some of your home’s value as inheritance, its sale will go towards paying off your lifetime mortgage – so the inheritance that you leave behind will reduce, which is something you may want to consider.
Bear in mind also that releasing equity can change your tax position and potentially alter your eligibility for welfare benefits (such as council tax support and pension credit). A financial adviser will help to explain what this might mean for you – that’s why it’s so important to get equity release advice, because everyone’s financial needs are different.
Can I move home if I have a lifetime mortgage?
Yes, provided your new property meets the lending criteria when you apply, and it’s agreed that you can move home and take your lifetime mortgage with you subject to terms and conditions.
It’s a bit different if you’re moving from a house or bungalow to a flat or maisonette, or a property of lower value, as you may need to repay part of your loan.
You’ll need to pay a valuation and application fee, and appoint and pay a legal adviser to carry out all the legal work for buying your new property and transferring your lifetime mortgage.
You won’t have to pay any early repayment charges if you transfer your loan to your new home.
If your new property doesn’t meet our current lending criteria, with downsizing protection, you can repay the lifetime mortgage with no early repayment charge. (This feature is available on lifetime mortgages applied for on or after 8 April 2019. Terms and conditions apply.)
What happens with my lifetime mortgage when I pass away?
A lifetime mortgage is designed to be paid in full when you (or you and your partner, if held jointly), pass away or go into long-term care.
The people who deal with your estate will be given a reasonable length of time to repay the loan, which is currently 12 months. Interest will continue to build up on the outstanding loan amount until it’s fully paid.
The lifetime mortgage is usually repaid through the sale of the property, but that isn’t always necessary if funds are raised in other ways to repay the loan.
Not paying is classed as a default, meaning the legal obligations of a loan haven’t been met, and your provider will reserve the right to repossess the property to settle the outstanding loan amount.
What happens with my lifetime mortgage if I go into long-term care?
You won’t have to pay an early repayment charge if it’s understood that you have certain conditions or challenges to your daily living, and you’ve permanently left your home to receive care.
You won’t be asked to leave your home just because you need long-term care. So you can continue to live in your home and receive permanent long-term care.