What's Equity Release & How Does It Work?

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How Does Releasing Equity From Your Property Work?

Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui

Do You Want to Learn More About Releasing Equity from Your Home? Get EXPERT Equity Release Advice & Get Equity Release Explained Simply.

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With over £4.8bn of property wealth released in 2021¹, and 2022 appearing to be another record-breaking year, the question on everyone’s lips is: What is equity release?

Now’s the time to access your share of this financial opportunity.

As experts in our field, we discuss the following in this article:

    With more than 10 expert consultations and many hours spent engrossed in researching over 220 plans, we’re in the ideal position to help you figure this out.

    Perhaps an equity release mortgage could be the solution you’ve been looking for?

    Continue reading to find out more NOW

    What Is Equity Release

    What’s Equity Release?​

    Equity Release lets UK homeowners aged 55 or over release tax free cash from their home. The amount you could release is calculated on the age of youngest homeowner and the property value

    How Does Equity Release Work?

    Equity release works by your property acting as collateral against the loan amount, which can be received as a lump sum, in smaller lump sum payments, or as monthly payments.

    With over 74% of UK retirees having property wealth², you may be in luck.

    You can use the money tied into your home with equity release, and live peacefully in your precious space for the rest of your days.

    Learn more about equity release:

    Do I Meet the Qualification Criteria?

    You could meet the equity release qualification criteria if you answer YES to the following questions:

    • Do you own a home in the UK?
    • Are you at least 55?
    • If you’re opting for a joint plan, are you both 55 or older?
    • Is your property worth more than 70,000 and in a reasonable condition?
    • Is the property your primary residence?
    • Have you paid off all or most of your existing mortgage?
    • Are there no more than 2 people on your deeds?

    Learn more about equity release qualification criteria:

    Are There Different Types of Equity Release?

    Yes, there are 2 types of equity release products, lifetime mortgages and home reversion schemes.

    Lifetime mortgages are vastly more popular equity release plans, with a flexible range of products falling under this umbrella, including drawdown lifetime mortgages, lump sum plans, and enhanced lifetime mortgages.

    The predecessor to the lifetime mortgage is the home reversion scheme. These products work by selling all or part of your home below market value², with a life-long tenancy granted to you, the homeowner.

    Learn more about the types of equity release:

    What's the Process?

    The first step in the equity release process is contacting a trusted financial advisor specialising in equity release products.

    Your advisor will assist you in finding the right plan for you, the submission of your application and will be able to assist until your application completes.

    Generally, it takes around 6 to 8 weeks from the application been submitted to complete.

    Learn more about the equity release process:

    Do I Need Advice?

    Yes, you do need financial advice when unlocking the equity from your property.

    Equity release is a massive financial decision that can’t be done without the guidance of a financial advisor.

    we always suggest using an advisor or broker who is a member of the equity release council.

    Learn more about equity release advice:

    What Does It Cost?

    Equity release costs, on average, somewhere between 4.5% and 5% in compound interest.

    In addition to the interest, you’ll pay £1,500 and £3,000³.

    The exact cost breakdown will depend on the vendors you select, but your financial advisor will assist with a precise quote before the final confirmation.

    The costs of the various equity release products include application fees, the surveyor’s valuation bill, advice fees, legal expenses, completion fees, and, of course, compound interest.

    The cost of your loan will increase over the years, especially if you choose note to repay the monthly interest.

    Here’s an example: If you borrow £20,000 aged 60 at 5% on a £120,000 home, and the amount you owe will be doubled approximately every 14 years. If you live until 74, you’ll owe around £40,000, and living until 88 will set you back approximately £80,000.

    Learn more about the various equity release costs:

    What Are the Uses?

    Homeowners over 55 can use equity release in any way you wish, whether it’s to cover monthly expenses or indulge in a dream holiday.

    Whatever your decision, spend under the guidance of a financial advisor, as you don’t want to be left with zero equity and no means to borrow.

    Learn more about common equity release uses:

    Is It Safe?

    Yes, equity release is safe as it’s under the guidance of the Equity Release Council and regulated by the Financial Conduct Authority (FCA)³.

    Both parties ensure that the industry remains safe and that clients receive fair treatment.

    Thanks to the Equity Release Council’s ‘no negative equity guarantee’, your estate will never owe more than the final sale price of your property. Any additional debt will be written off.

    Learn more about unlocking equity safely:

    Who Offers Equity Release

    Equity release companies across the UK offer these products, including financial institutions, banks, mutual funds, and building societies.

    For a legitimate product, always be sure to select a company that’s a member of the Equity Release Council.

    Learn more about the top equity release providers:

    Are There Companies to Avoid?

    Yes, there are equity release companies to avoid in 2022.

    Avoid the following companies at all costs:

    • Not a member of the Equity Release Council.
    • Doesn’t offer a ‘no negative equity guarantee’.
    • Offers variable interest rates with no cap.
    • Doesn’t allow you to pay back any of the loan or interest in your lifetime.
    • Provides an immediate loan online or in-person without reviewing your circumstances.

    Learn more about how to avoid a negative equity release experience:

    Where Can I Find the Best Deals?

    You can find the best equity release deals by contacting an advisor.

    Their role is first to confirm that equity release is right for you and then assess the market to find the best plan for your circumstances.

    Learn more about finding the best equity release deals:

    How Much Equity Can I Unlock?

    The amount of equity you’ll have the opportunity to unlock will depend on your age, property value and, with an enhanced lifetime mortgage, your health condition.

    You’ll usually qualify to access 20% to 60% of the market value of your property³.

    Try our equity release calculator to get an accurate estimate of the amount of cash you could be eligible to unlock.

    Alternative ways to determine the equity available in your home:

    What Are My Alternatives?

    Your alternatives to equity release include:

    • Downsizing
    • Using alternative credit
    • Remortgaging
    • Getting a part-time job
    • Retirement interest-only mortgages

    Learn more about equity release alternatives:

    Common Questions

    Is Equity Release Regulated?

    Can I Still Take Out an Equity Release Plan if I Have an Outstanding Mortgage?

    Will I Still Own My House With Equity Release?

    How Will Releasing Equity Affect My Family?

    Can I Still Leave an Inheritance with Equity Release?

    Will My Entitlement to Means-Tested Benefits Be Affected?

    Will I Lose My Home?

    Can I Change My Equity Release Plan?

    Can I Move Home With Equity Release?

    Can You Pay Back Equity Release Early?

    What Happens to My Equity Release Plan if I Enter Long-Term Care?

    In Conclusion

    You’ve come to the right place if you think equity release could be the answer you’ve been looking for.

    SovereignBoss continuously researches and curates the latest and most accurate equity release information to guide you through all aspects of the equity release journey. We’ve done the research, so you don’t need to.

    Your dream portal unpacking exactly ‘what is equity release’ awaits!

    Before You Go...

    How Much Can You Release? 👇


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    Editorial Note: This content has been independently collected by the SovereignBoss team and is offered on a non-advised basis. SovereignBoss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

    Do you already have a plan?
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    What Are You Looking For?

    Most people are using equity release as a means of retaining the use of their house while also obtaining a lump sum or a steady stream of income. Get matched with an expert and check your eligibility for equity release options.

    Use our free equity release calculator & see how much you can release today.

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