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.
The type of equity release that we offer is called a lifetime mortgage. It's a long-term loan secured on your home, which is usually repaid from its sale when you die or go into long-term care, subject to our terms and conditions. Until then, you'll still own your home and won't need to move out. You can receive either a one-off lump sum payment or a smaller lump sum with a cash reserve to draw from in 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.
Our lifetime mortgage
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 will not pay interest on the money you do not draw 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 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 need long-term care, subject to our terms and conditions.
When you arrange a lifetime mortgage with us, the interest rate and the amount that you can borrow will be based on your individual circumstances – including your age, health and lifestyle and the current value of your property. Your interest rate is also fixed for the lifetime of the loan, so it’ll never go up or down. If you take a lump sum with a cash reserve, each amount of money you withdraw will have its own fixed rate of interest, which we'll calculate at the time you take it out. You won't pay interest on any money in your reserve that you haven't yet withdrawn.
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. 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 0808 134 9656.
Can you pay back a lifetime mortgage early?
It’s possible, but equity release products aren’t usually set up to be paid off early. Our lifetime mortgage, for example, isn’t designed to be repaid in full before you (and your partner, if you have a joint lifetime mortgage) pass away, or need long-term care, subject to our terms and conditions.
However, sometimes circumstances change, and you might want to repay your loan in full before then. If so, early repayment charges may apply. We offer fixed percentage and gilt linked early repayment charges and you must choose one when you set up a lifetime mortgage with us – these guides explain how each type of charge works:
Our voluntary partial repayment feature allows you to make 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’ve borrowed from us and the minimum you can repay at each instalment is £50. We can't set up regular repayments on your account, so you'll need to contact us each time you want to make a payment.
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 product options 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. Making use of its value, if you’d prefer not to move, may boil down to a decision between a remortgage or equity release. Remortgaging may be your only option for releasing equity in a house if you're under 55.
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 have a tax impact 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.
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, subject to our terms and conditions.
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.
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.
We're a longstanding member of the Equity Release Council, a trade body that sets high standards of conduct and practice for equity release providers. 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 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 that, 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 a percentage 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 means-tested 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, according to our to terms and conditions.
If you’re moving from a house or bungalow to a flat or maisonette, or any property of lower value, 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, our downsizing protection feature means 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, subject to our terms and conditions.
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. If it is possible to receive the care you require within your home, you can continue to live there and the lifetime mortgage will not need to be repaid as long as you continue to do so.