Guides

This content was reviewed and approved by Amy Fletcher.

The information on this page should not be considered as financial advice. If you are unsure what’s right for you, please make sure you speak to an equity release adviser.

What is equity?

Equity is the portion of your home's value that you own outright. It's the difference between what your property is worth and what you still owe on your mortgage.

For example, if your home is worth £100,000 and you have a £90,000 mortgage, you own £10,000 of equity. Over time, as you pay down your mortgage and if your property increases in value, that equity grows.

What does equity release mean?

Equity release means accessing some or all of the equity built up in your home as cash, without having to sell it.

The right option depends on your age. If you're under 55, your choices are remortgaging, a homeowner loan or downsizing. If you're 55 or over, you also have access to lifetime mortgages and home reversion plans - products specifically designed for later life, which typically require no monthly repayments.

Below is a summary of the main options to release equity from your home.

An equity release adviser can help you work out which route is right for your circumstances.

How much can you release from your home?

The amount depends on your age, property value, and the option you choose:

Options for releasing equity for those under 55

If you're under 55 and want to release equity without selling your home, you have two options: remortgaging or a homeowner loan.

Remortgaging

Remortgaging means switching to a new mortgage, potentially borrowing more than you currently owe, to unlock equity you've built up. To release equity this way, you simply increase your loan amount by however much you want to access.

For example, if your home is worth £300,000 and you owe £200,000; you remortgage for £220,000, your new lender pays off the old mortgage and releases the £20,000 difference to you as cash.

A mortgage broker will assess your property value, remaining mortgage balance, age, and employment status (including affordability) to tell you what's available and what fees may apply.

Things to consider about remortgaging

• Your retirement age will affect how much you can borrow, and whether a mortgage provider is willing to lend to you.
• You won’t have two loans running concurrently, instead it may be your mortgage payments increase.
• Depending on your current mortgage, you may have to pay early repayment fees.
• If house prices drop you could end up in negative equity as the size of your loan is larger than the property value.
• As with your current mortgage, you’ll have to keep up with the mortgage repayments or risk repossession.
• In some cases, the lump sum of money that you release could affect your entitlement to any means-tested benefits that you may receive now or in the future.

Homeowner loans

A homeowner loan, also called a secured loan or second charge mortgage, is a way to get a lump sum of money without remortgaging. It’s an additional loan on top of your current mortgage, and you don’t have to pay any early repayment fees like you might with a remortgage. It can help if you need to consolidate debt, make a series of home improvements or fund a large necessary purchase.

As the loan is against your home, it is considered secured so you may be able to borrow more than with a personal loan you would get from a bank.

Things to consider about homeowner loans

• Your credit score will impact how much you can borrow, however you may be eligible even with a poor credit history.
• You may be advised that a homeowner loan isn’t right for you.
• You can borrow more than with an unsecured loan.
• The length to arrange is often longer than a personal loan, so if you need the money quickly, it may be trickier.
• Missed repayments could still mean your home is repossessed.
• As you aren’t paying off your existing mortgage, you will have two mortgages which both need to be repaid.

Options for releasing equity for those over 55

If you’re over 55, then you have different options for releasing equity. This is the range of products people most often associate with the term “equity release". Equity release for over 55s includes lifetime mortgages and home reversion plans. These are different to remortgaging or homeowner loans as there is often no monthly repayment involved.

Lifetime mortgages

Lifetime mortgages provide the homeowner(s) with cash that was tied up in their home. The lifetime mortgage is secured against the property. The interest from a lifetime mortgage is rolled up into the loan total and builds up for as long as you have the mortgage. Interest is charged on the total amount borrowed and to the interest already added. This quickly increases the amount you owe. 

A lifetime mortgage is repaid when the last borrower either passes away or moves into long-term care and the home is sold. The money made from the home sale then repays the loan amount including accrued interest and the remainder is passed on to the estate.

You can get a lifetime mortgage as a lump sum, or a series of regular smaller sums called a drawdown. With drawdown, interest only accrues on the money you've actually taken, not the full amount available, which can significantly reduce the total interest that builds up over time.

For example, if you're approved for £50,000 but only draw down £10,000 initially, interest only builds on that £10,000 until you take more.

It’s important to note however that even if you’re approved for £50,000, each drawdown is a separate loan request to your lender and is not guaranteed.

Things to consider about lifetime mortgages

• Interest is compound, so can add up very quickly.
• Repayment options are possible but depends on the provider.
• Interest rates are fixed at the point at which you take the loan out and are secured for the duration of the loan.
• The amount of inheritance you leave may be greatly reduced.
• If you have an existing mortgage, it will have to be paid off in its entirety when the lifetime mortgage completes.
• You will need to keep your home in a certain state of repair and not breach the terms and conditions of your lender. Your home could be repossessed if you don’t, as your lender will need to be confident that your home can be sold easily on the open market.

The lender you choose must be FCA regulated, and if they are a member of the Equity Release Council then you can be even more confident that their products meet a high standard. This includes the no-negative-equity guarantee meaning you won’t owe more than your home is worth when it’s sold, regardless of how much interest has built up.

Home reversion plans

Home reversions plans are offered by specific home reversion providers. These providers will buy a share of your home and in return you get a tax-free lump sum and live in the home rent free or pay a nominal sum. You also agree to keep the home in a saleable condition and may have inspections to ensure this is the case.

When the last occupant of the home passes away or moves into long-term care the home is sold and the home reversion company receives the money for the share they purchased and your estate receives the other percentage. Because you've sold a share of your home, you won't benefit from any increase in that portion's value if property prices rise.

Things to consider about home reversion plans

• Homes in poor state of repair or certain homes are not eligible for home reversion plans.
• You may have to pay a nominal sum of rent each month or year with some providers.
• You have to keep your home in a certain state of repair.
• The amount you get from the home reversion provider is calculated at around 60% of market value so you may get less money than anticipated.

At LV= we don’t currently offer advice on home reversion plans.

Is equity release right for you?

Equity release is a long-term commitment with significant financial implications and isn't the right solution for everyone. Before proceeding, consider:

• Do you need the money now, or could you manage with smaller amounts over time?
• How important is leaving an inheritance to your family?
• Could downsizing achieve the same goal without taking on debt?
• Will a lump sum affect any means-tested benefits you currently receive?

A regulated adviser should explore all alternatives with you before recommending any product.

What do you do to start the equity release process?

The best thing to do if you are considering a form of equity release is to speak to an equity release adviser or equity release advice provider. They will provide you with the information needed to ensure you are making the right decision for you and your finances. It may be that an equity release adviser recommends that you don’t release equity if they don’t think it is in your best interests.

The adviser you choose must be FCA regulated, and if they are a member of the Equity Release Council then you can be even more confident they are acting in your best interests.

LV= offer FCA regulated equity release advice

If you’re looking to release equity and are aged 55 or over, then LV=’s equity release advisers can help you. We look at the whole of the market to see what, if any, equity release product is right for you.

Request a commitment free callback today to see what help LV= could give you.