What's Equity Release & How Does It Work?

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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What’s Equity Release & How Does It Work?

What is equity release & how does it work?

Don’t loose out on a golden retirement opportunity!

Retirement is around the corner. By not acting now, you could find yourself in a situation where you’re left strapped for cash, with nowhere to turn. Now’s the time to access your share of the £2m already released in 2021.

We’ll unlock:

  • The secret to using these products safely and correctly.
  • An introduction to how to release equity could change your life.
  • The types of equity release available in Jan 2022.
  • A comprehensive guide on how equity release works.

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!

Before you continue reading, take a look at this video that sums up essential equity release information:

What’s Equity Release?

Equity release refers to a range of products that let you access the equity (cash) tied up in the value of your property if you are older. It’s a loan secured against your estate’s value, while still living there. You can release money as a lump sum, a drawdown, a combination of both, or a regular income.

How Does Equity Release Work?

Equity release mortgages work by the loan, plus compounded interest, being repaid when the last homeowner dies or goes into long-term care. This is usually done from the sale of the home in question.

Equity Release Options

The 2 most common equity release loan types in Jan 2022 are a lifetime mortgage and a home reversion plan. It’s essential to understand the details of both plans to decide which works best for you. Both have drawdown and lump sum options.

How does equity release work with a home reversion scheme and a lifetime mortgage?

Let’s take a look!

Lifetime Mortgage

lifetime mortgage is the most common form of equity release loan, which allows you to secure the loan against your primary residence. A lifetime mortgage is tailored to run for your lifetime, during which the house remains 100% yours, and therefore stays in your name.

Unlike traditional residential mortgages, it has no payment requirements with a lifetime mortgage, and you can continue living in your home. The money you release (plus interest) is repaid when you die or if you relocate to long-term care and the lifetime mortgage plan comes to an end.

If there’s any cash left after the loan has been settled, it goes to your estate and can be distributed as outlined in your will.

Home Reversion

home reversion plan is another option that you can consider to release equity. You raise money by selling all or part of your home below market value to your home reversion provider, while continuing to live in it rent-free until you die or relocate to long-term care.

Equity Release Tips

While these are fantastic products, they do have their pitfalls. However, these can be avoided if you follow these fantastic tips:

  • Don’t unlock the full amount that you need in one go – Instead, keep your cash in a drawdown facility for both a lifetime mortgage and a home reversion scheme. You’ll only pay the loan’s interest so if you don’t need every pound right away, be strategic about it.
  • Get professional financial advice from an Equity Release Council member – When unlocking equity from your home with a home reversion plan or lifetime mortgage, you will be required to seek professional advise. Find a dedicated individual who’ll give you honest feedback on whether or not an equity release product is right for you. However, if you have a trusted financial adviser, that’s also a great option. As long as they’re educated in all things equity release, a whole market adviser might be a better option, as they’ll assist you from a holistic point of view.
  • Be aware that an equity release product can effect your benefits – Means-tested benefits are based on affordability. Your income and savings will determine whether or not you’re eligible. If you unlock equity, you could end up having these benefits reduced or losing them all together. Therefore, it’s essential to weigh up all the pros and cons.
  • Your partner/spouse – if the equity release plan is in both your names, the home will only be sold once you both pass away or moves into a long-term care facility. If it’s only in one persons’ name, then if your spouse unlocks equity and then dies, you’ll have to settle the loan amount if you want to stay in the home!
  • Your children – you can expect to give your heirs a reduced inheritance, unless you ring-fence a portion of the value with an inheritance protection guarantee.

Equity Release Uses

You can use the equity released for any purpose you wish to. However, if you have an existing mortgage, you will need to use some of the equity to pay that off first.

From there, the decision is all yours!

A tax-free lump sum of cash can be used to go on a dream holiday or secure your family’s inheritance. Smaller monthly payments are suitable if you are looking for a way to cover your living costs. Or, you can opt for an equity release plan with a drawdown and lump sum option.

Need inspiration? Check Out: 12 MOST COMMON Equity Release Uses

Equity Release Criteria

To be eligible for equity release, you need to meet the following equity release criteria:

  • You must be at least 55+. In some cases, the plan might require you to be 60 or 65.
  • If there are 2 or more homeowners, the youngest needs to be 55 or older.
  • You need to own your home.
  • You should have no or only a small mortgage left on your property.
  • Your property must be located in the UK.

Equity Release Alternatives

If you’re not keen to release the equity from your home, there are alternatives to aid in unlocking a stress-free retirement. While these may take a little work, they could end up highly profitable in the long run.

Perhaps consider downsizing and pocketing the balance, renting out a room, or even investing in a business? We recommend that you contact a financial adviser who can guide you on your retirement journey.

While financial advice can be costly, it will only provide benefits for you and your family in the long run!

But wait, there’s another option you should be aware of!

With the current economic challenges and changes, more and more providers will allow you to make voluntary monthly repayments to control the mortgage balance if needed.

There are several flexible options, and they offer you the ability to:

  • Pay monthly or ad hoc to help you control your mortgage balance.
  • Protect a percentage of your estate with an Inheritance Protection Guarantee.
  • Make tax-free equity withdrawals on a drawdown basis, following the establishment of an initial cash reserve facility.
  • Have downsizing protection and compassionate early repayment. Both of these can assist in negating the need for early repayment charges.
  • Borrow more or offer a lower interest based on one’s health and lifestyle conditions.

Is Equity Release Safe?

Yes, equity release is safe. The Equity Release Council (ERC) regulates the industry to ensure that consumers are protected. Before the equity release council was formed in 1991, the industry was fraught with dubious lenders. However, today’s picture is vastly different.

The council has implemented rules to ensure that all their members offer fair deals that won’t negatively impact neither you nor your family. You’ll be protected, as long as you use your funds responsibly.

In addition, you’ll receive financial and legal advice throughout the process.

Equity Release Companies for Lifetime Mortgages & Home Reversion Schemes

When unlocking equity from your home, it’s vital to be aware of the best equity release companies on the market.

Best Equity Release Companies

To recognise the best equity release company in Jan 2022, you should look out for the following:

  • They must be an Equity Release Council member.
  • They must be clear about the terms and conditions of your selected plan, whether a lifetime mortgage and home reversion scheme.
  • The company must offer a ‘no negative equity guarantee,’ ensuring that you don’t owe more than the amount your home sells for.
  • They should offer low early repayment charges.
  • Look out for no early repayment charges if you move, and your new property is worth less than your old one.
  • Finally, look for flexibility, meaning you can take the loan with you to another property.

At your fingertips: Quickly Compare 200+ Equity Release Quotes!

Equity Release Companies to Avoid

On the other hand, there are clear indicators of which equity release companies to avoid. These include things like using a dubious lender as an equity release product provider that could ruin your life and leave you drowning in debt. Rather stick to a top equity release provider that are available in the industry.

Equity Release Advice

It’s essential to get the best financial advice from an equity release adviser, to help you through the journey. They will answer your burning questions, guide you on the process, and help you find the perfect plan to suit your needs.

You can find a financial adviser by:

  • Searching for available professionals around you on Google.
  • Searching on the Equity Release Council’s website for lifetime mortgages and home reversion schemes.
  • Looking at your local media outlets and notice boards.
  • Asking friends and family members for personal referrals.
  • Via searches on social media channels.

Pro Tip: Look for someone who specialises in lifetime mortgages and equity release schemes.

It’s acceptable to meet with a few advisers until you find the right one. You must trust the person you work with, as they’ll be guiding you through your money-based decisions.

Advisers will differ according to experience, education and specialties. However, all advisers fit into 2 categories:

  • Some are ‘whole of market’ financial advisers. They will review all lifetime mortgages and home reversion products and plans available on the market and will find the best option for your home.
  • The other type, ‘restricted advisers’, work with limited providers and plans, ones that suit most of their clients. They will recommend you a suitable plan based on one of these.

It is advisable to look for a whole market adviser as they have a broader, holistic range of providers and plans to choose from.

In addition, you get Mortgage Only Advisers and Independent Financial Advisers (aka IFA’s); both can advise on equity release plans.

How Much Equity Can You Release Compared to the Market Value of My Estate?

The amount of equity that you can release depends on your and your partner’s age, the condition of your health, and the value of your property. Your property will be required to undergo a detailed and up-to-date valuation, to determine its value and condition.

Using our equity release calculator is a simple, stress-free process. All you’re required to do is give your estimated home value. You’ll then need to provide a few personal details.

Is Equity Release a Wise Option in Jan 2022?

Equity release is a good idea in Jan 2022 if you’ve considered all your alternatives and consulted with a financial adviser who has confirmed that equity release is the ideal option for you and your whole family.

What Are the Pros & Cons of Equity Release?

The biggest pro of equity release is your accessing tax-free cash from your property, while still being able to live there. The biggest con is that you’ll get less than the full value of your estate, and leave a smaller inheritance.

With that, here’s the 7 advantages and the disadvantages of these products:

7 Advantages of Equity Release

  • Equity release enables you to unlock tax-free.
  • You can remain at home until you pass on or move to long-term care facility.
  • You can use the cash you release in any way you wish.
  • Interest rates on lifetime mortgages are lower than ever before.
  • You don’t have to make any repayments in your lifetime.
  • The Equity Release Council ensures that you can’t go into negative equity with a ‘no negative equity guarantee’.
  • You can protect a percentage of your home to go to your heirs for when you pass away.

6 Disadvantages of Equity Release

  • Equity release products do have costs involved.
  • Unlocking equity will reduce your inheritance.
  • It could make remortgaging your home difficult.
  • It may affect your state benefits.
  • With a home reversion scheme, you sell your property below market value.
  • Can you end your lifetime mortgage early? If you do, youcould end up covering early repayment charges.

The answer is here: Is Equity Release a Good Idea?

Interest Rates & Costs

Fees Involved

There are equity release costs, which include:

  • Equity Release Advice Fees – You’ll need to hire an independent financial adviser who’ll guide you throughout the equity release process, which is an essential equity release cost.
  • Equity Release Application & Arrangement Fees – With most lenders, you’ll need to pay an application fee when releasing equity. These funds can be settled with some of the money you unlock.
  • Equity Release Surveyor’s Fees – During the process, you will need to have a surveyor give your home a detailed valuation.
  • Equity Release Solicitor’s Fees – With all loans, you’ll need a solicitor as a part of the process. They’ll take care of all the legal aspects of equity release.
  • Compound interest – The compound interest is usually repaid when the homeowner eventuallypasses away or instead enters long-term care.

Here’s More Information: Equity Release Costs

Interest Rates for Equity Release in Jan 2022

In the past, interest rates were vastly higher than those of traditional mortgages. However, these days, things are hugely different.


Interest rates are sitting lower than ever before. As things stand, equity release products has never been cheaper. In fact, interest rates are currently competitive with those of traditional mortgages.

Learn More: Equity Release Mortgage Rates

In Conclusion

While releasing equity from your home might seem the perfect answer for you, it’s essential to weigh up all the advantages and pitfalls before choosing if equity release is right financial product for you.

If your pension and other businesses cannot help you maintain or improve your lifestyle, then it’s an excellent option for you, and worth any risks involved. As long as you own your home and are over the age of 55, there is a good chance there will be an equity release scheme available for you.

There are no limitations on how you can use the money and you will not have to worry about making repayments or losing your home.

Editorial Note: This content has been independently collected by the SovereignBoss advisor 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.

rachel w

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
john lawson profile.jpg

Written by
John Lawson
Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.

Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
kath icon

Katherine Read
Consumer Affairs Writer

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.

Nicola Date
Writer & Journalist

Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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