A Guide To Equity Release

You might think that the only way to access the capital in your home is to move. This isn’t the case. Another option you could explore is equity release. With equity release, you can free up capital in your property without selling.

What Is Equity?

Equity is the amount of money your home is worth minus the mortgage that is left to pay. So, if you have a home that has a market value of £300,000 and you still have £50,000 left to pay on your mortgage, your equity would be £250,000. You could also have a secured loan on the home which would reduce your level of equity further.

There is a range of different plans that will ensure you can release cash.  You can either take out a loan that is secured against your property. Or, you can sell part of your home. Regardless of which plan you choose, you will be able to continue to live in your home up until you pass away or move into permanent care.

How Is The Cash Provided To You?

The cash from equity release can be provided as either a lump sum or through instalments. The option you choose here will depend on your individual needs. Crucially, there are no set rules on how you spend this cash. For instance, you could use it to make renovations on the property. Or, you might want to use it for a holiday. The choice is entirely up to you.

However, you will need to use it to pay off an existing mortgage first. Once you have done this, you can spend the rest however you want and the sum is tax-free.

How Much Equity Can You Release?

​You will usually be able to release between 20 and 50% of the equity on your home. However, the exact amount will depend on both your personal circumstances and your age. Use this equity release calculator from Lending Expert to get an exact quote.

There are two different types of equity release plans:

​Lifetime mortgage - With this option, you can borrow some of the home’s value with a capped or fixed interest rate. Since no repayments are made, the money that you owe increases all the time. However, some drawdown versions will allow you to pay back the interest, thus reducing the cost.

Home Reversion Plan - This provides a tax-free lump for a percentage of the home below market value. You will be able to continue to live in the home rent-free. When it is sold, the proceeds split based on how much the lender now owns and you own. If the property rises in value, the amount the lender gets also rises.

How Much Does Equity Release Cost?

Lifetime mortgage equity releases are usually around 5%. There are also arrangement fees which may be between £15000 and £3000. This will depend on your individual plan. Other fees including legal work and application costs.

We hope this helps you understand what equity release is and how it could benefit you. Remember to explore a range of different plans on the market before committing to a company providing this option.