In the second quarter of 2023, 7,817 existing drawdown equity release customers made use of their property equity facilities.¹

Could you be next?

Discover if drawdown equity release is just a popular phase or a worthwhile financial solution.

Our expert team at SovereignBoss has worked tirelessly to research and define drawdown equity release products.

Therefore...

What Is a Drawdown Equity Release?

Drawdown equity release is a flexible lifetime mortgage, which allows homeowners, typically over the age of 55, to access the value tied up in their homes whilst retaining ownership. 

Instead of receiving a single lump sum, you can access your property's wealth via a series of ad hoc withdrawals from your cash reserve.

The benefit:

The interest is only charged on the funds you have drawn down, and not on the total sum released. This has the potential of reducing the overall cost of the loan.

It is an increasingly popular choice if you are looking for a versatile way to enhance your retirement finances.

How Does Drawdown Equity Release Work?

Drawdown equity release works by securing a loan against the value of your property, similar to a mortgage, but without monthly repayments. 

Rather:

Your loan and accumulated interest are repaid when you pass away or move into long-term care. 

Do I Qualify for a Drawdown Equity Release Plan?

Qualification for a drawdown equity release plan primarily depends on three factors:

• Your age
• The value of your property
• Your available property equity

Further considerations:

• You must be at least 55 years old, but some lenders have higher age requirements. 
• The property should be your main residence, located in the UK, and must be of standard construction. 
• Lenders set a minimum property value, usually £70,000, lender dependent. 
• An existing mortgage or a secured loan on your property would need to be cleared, either before, or with some of the equity unlocked. 

It is always advised to consult with a financial advisor or broker to assess suitability.

How Does the Drawdown Release Process Work in 2025?

The drawdown release process in 2025 generally follows these steps:

1. Agreement: You agree with a lender on a maximum equity release amount based on your home's value, your age, and other criteria.
2. Initial Release: You can choose to take an initial sum, which may be a smaller amount than the total you have agreed upon.
3. Reserve: The remaining amount is kept in reserve, so you can access it later when needed.
4. Withdrawals: You have the flexibility to make subsequent withdrawals ("drawdowns") from this reserve as and when you require, within the limits set by the lender.
5. Interest: You will only be charged interest on the amounts you have withdrawn, not on the untouched reserve. This can mean slower growth of debt compared to taking out the full lump sum all at once.
6. Repayment: Like other equity release schemes, you would typically repay the loan, along with it's accumulated interest, when you either pass away, decide to sell your property or move into long-term care.

You can decide when and how much to draw down, giving you control over how quickly your debt increases.

This method gives you flexibility, allowing you to adjust to changing financial needs without borrowing the full sum all at once.

It is essential for you to seek independent financial and legal advice before entering into an equity release agreement.

Different providers may have varying procedures, and your advisor can guide you through them.

Advantages and Disadvantages of Drawdown Equity Release

While drawdown equity release provides you with a flexible approach to accessing your home's equity, it is essential to consider it's advantages against it's limitations. 

This section delves into both sides to help you make an informed decision about whether this form of equity release aligns with your financial needs and goals.

8 Pros

Discover the eight primary benefits of choosing a drawdown equity release plan.

1. Flexibility: You can draw the money as and when you need it, providing financial flexibility.
2. Lower interest: Interest is only accrued on the amount you have drawn down, not on the entire available reserve. This can reduce the total loan cost over time.
3. No monthly repayments: Unlike a traditional mortgage, there are no monthly repayments. The loan and interest are repaid when the property is sold.
4. Stay in your home: You retain the right to live in your home for the rest of your life, or until you move into long-term care.
5. Inheritance protection: Some plans come with an inheritance protection guarantee², allowing you to ring-fence a portion of your property's value for your heirs.
6. Tax-free cash: The money you release is tax-free and can be used however you wish, whether it is for home improvements, travel, or helping family members.
7. No Negative Equity Guarantee: Many Equity Release Council-approved plans come with a no negative equity guarantee.³ This means you will never owe more than the value of your home, protecting you from falling property prices.
8. Financial planning: By using a drawdown facility, you can effectively manage your retirement finances, as you know there is a reserve of cash available when needed.

8 Cons

Beware of these eight potential drawbacks of a drawdown equity release plan.

1. Interest accrual: The interest on the amount you draw down compounds over time, which can significantly increase the amount you owe.
2. Reduced inheritance: As the loan and interest are repaid from the sale of your home, this could reduce the value of the estate you leave behind.
3. Early repayment charges: If you decide to repay the loan earlier than expected, there may be substantial early repayment charges.
4. Eligibility for benefits: Releasing equity could affect your entitlement to means-tested state benefits.
5. Limited flexibility to move: If you want to move to a new property in the future, it is subject to the new property being acceptable to your equity release provider.
6. Long-term commitment: Equity release is a long-term commitment, so if your circumstances change, it may not be easy to alter the arrangement.
7. Limitation on future borrowing: Once you take out a drawdown equity release plan, you will not be able to borrow against your property in the future.
8. Long-term Commitment: It is a decision that is not easily reversed without potential penalties or costs, meaning it is a commitment that may not be adaptable to changing circumstances.

Evaluating the advantages and disadvantages of a drawdown equity release plan is crucial in assessing it's alignment with your present needs and long-term financial objectives.

How Much Can I Borrow?

The amount you can borrow with a drawdown equity release plan depends on several factors including your age, the value of your property, and the terms set by the equity release provider. 

Generally, as you get older, you may qualify to borrow a higher percentage of your property's value. 

With most drawdown lifetime mortgages, you can access between 20% to 60% of your home's worth.⁴ 

If you like a general benchmark of what you could borrow, you can try using a drawdown lifetime mortgage calculator.

For an estimate tailored to your situation, it is wise to consult with a financial advisor or broker.

Is Drawdown Equity Release Right for Your Financial Situation?

Determining whether a drawdown equity release plan is right for your financial situation depends on a variety of personal factors and circumstances. 

Drawdown equity release can offer flexible retirement income and reduced interest charges, but it may also impact your estate's value and eligibility for certain benefits. 

Given it's long-term implications and potential complexities, it is essential to consult a financial advisor to determine if it aligns with your financial situation and goals.

Common Questions

In Conclusion

There are quite a few different types of equity release plans.

A drawdown equity release plan offers a flexible, tailored way to leverage the value tied up in your home, providing you with a financial boost during retirement. 

It's unique structure allows you to retain homeownership whilst only accruing interest on the funds you withdraw, which can help manage the overall cost. 

However, it is crucial to consider the potential impacts on your estate, means-tested benefits, and the long-term commitment involved. 

Every financial decision should be made with careful consideration of your personal circumstances and future needs. 

Therefore, always seek professional advice to fully understand the implications and ensure that a drawdown equity release plan is the right option for you.