Equity Release

  • Repay outstanding debts & mortgages to reduce outgoings
  • Give your savings a boost in case of emergencies
  • Increase your income
  • Start a new hobby
  • Holiday home
  • Enjoy life’s little (or big) luxuries
  • Holiday for you and the family
  • Travel
  • Provide a deposit for your children or grandchildren
  • Set aside funds for education needs
  • Put funds in to Trust for Inheritance Tax planning

Key Information

Equity Release
Equity release is a term used to describe the action of raising money from your home without the need to move out of it.
There are two main types of scheme in use at present:

Lifetime Mortgages
This is a loan secured on the home to provide either a lump sum or regular monies at specific intervals.

The homeowner continues to own the title deed and the mortgage lender simply places a first charge on the property to secure their financial interest on sale.

As these mortgages are generally utilised to provide much needed funds, the compulsion to repay interest on the loan or repay the capital is normally waived.  Instead, the interest due is added to the loan on a monthly basis, called a ‘roll-up’ mortgage.

This means that the loan increases by the amount of interest owed on a monthly basis.  The compound effect means that the mortgage debt increases each and every month until the mortgage is eventually repaid from the sale of the property.

If the mortgage remains on the property for a number of years, the final mortgage outstanding including the accrued interest could leave little or no remaining funds for your beneficiaries.

The rate of interest is normally fixed from outset and can remain fixed for the life of the mortgage.

Home Reversions
The fundamental difference is that with this option you sell all or part of your home for a capital sum or regular income.

To secure your right to live in the property, a lease is created so that you can remain in the property for the rest of your life, or until you move permanently into a care home or sheltered accommodation.

How safe is it and will I still own my home ?

As with any mortgage, the over-riding concern is making sure you keep your home.  Most Lifetime Mortgages do not compel you to make interest or capital repayments and therefore, you won’t have that commitment.


As long as it is NOT a reversionary mortgage, you still own the home and the lender simply has a financial interest, which has to be repaid on sale.

Safe Home Income Plans (SHIP) was launched in 1991 in direct response to the growing need for consumer protection

During May 2012, SHIP was re-launched as the Equity Release Council, broadening its membership to incorporate all aspects of equity release advice and product provision.

As well as providers, the new body represents financial advisers, solicitors, surveyors and other interested parties working in the equity release industry.

The SHIP Code of Conduct has been incorporated into the Council, which includes the following safeguards:

  • You have the right to remain in your property for life
  • Information presented must be fair, simple and complete
  • You have the right to transfer the equity release plan if you move to another eligible property
  • In addition to the financial advice you receive, you appoint your own independent solicitor to act for you
  • Your solicitor will sign a certificate to confirm that all the risks and benefits of the plan have been explained to you and that you have understood them
  • You will benefit from the No Negative Equity Guarantee – you will never owe more than the value of your home.

Financial Conduct Authority

The equity release industry is regulated.

This means that:

  • We are authorised and qualified to advise you on these plans;
  • We must present our illustrations in a set format, which means that they are comparable with those of our competitors.

Equity release might be a perfectly sensible way of raising money if you need more income or capital in retirement. Using equity release will reduce the amount of your estate and the tax due, but it needs to be planned correctly.

If the length of time you have the mortgage is longer than you thought, the actual value you leave your beneficiaries could be greatly reduced.  Assuming the house suffers the full effect of inheritance tax, your beneficiaries might prefer to have 60% of something than 100% of nothing

What happens with the Interest payments ?
Roll-up / Compound Interest

As these mortgages are generally utilised to provide much needed funds, the compulsion to repay interest on the loan or repay the capital is normally waived.  Instead, the interest due is added to the loan on a monthly basis, called a ‘roll-up’ mortgage.

This means that the loan increases by the amount of interest owed on a monthly basis.  The compound effect means that the mortgage debt increases each and every month until the mortgage is eventually repaid from the sale of the property.

If the mortgage remains on the property for a number of years, the final mortgage outstanding including the accrued interest could leave little or no remaining funds for your beneficiaries

The rate of interest is normally fixed from outset and can remain fixed for the life of the mortgage.

Interest Rates

These are long-term mortgages, often the expectation is that the mortgage will not be repaid until the death of the homeowner(s).  Therefore, the rates tend to be higher than the normal residential mortgage market
Most are fixed for the term of the mortgage, however long it is.

  • The interest due is normally added to the mortgage on a monthly basis
  • The compound effect means that the mortgage debt increases each and every month until the mortgage is eventually repaid
  • If the mortgage remains on the property for a number of years, the final mortgage outstanding including the accrued interest could leave little or no remaining funds for your beneficiaries.
  • The rate of interest is normally fixed from outset and can remain fixed for the life of the mortgage
Making Repayments
  • Some lenders are now creating lifetime mortgages that allow borrowers to make interest payments from outset to help reduce the compounding debt
  • You can often change to a full ‘no payment’ mortgage later on, so that if your income reduces in future you have a safety net
  • Over the years, we have seen some of the beneficiaries make capital repayments or interest payments to keep the debt down.  As beneficiaries of the estate, it is to their benefit in the long run
What costs do I need to consider ?

Main costs are as follows;

  • Valuation – dependent on property value, average around £500, for properties under £500,000
  • Application – some lenders levy a fee starting around £500, paid on completion.  Many waive this fee at present.
  • Solicitor – Due to the complexity of lifetime mortgages, lenders insist that you have legal advice and the typical prices tend to be upwards of £800

Legal Advice
It is imperative that you take independent legal advice before signing any offers.  All lenders will insist on this to confirm that the solicitor has explained all the essential features and implications of the chosen mortgage have been brought to your attention.

Valuation
The amount you can borrow normally depends on your age and a fixed percentage of the property value.  The lender will instruct their own valuer, who will report back their findings to the lender.  As the amount of loan offered is dependent it is important to consider getting independent valuations so that you have a clearer expectation.  Most estate agents can provide comparable figures to keep costs down.

Maintaining the Property
The lender does retain a financial interest in the property and will insist that a robust type of buildings insurance policy is in place.
Secondly, they are likely to reserve the right to carry out inspections to make sure the property does not fall into dis-repair.  If they feel that repairs need to be made, they can insist they are carried out, or employ their own contractors to do the work and add the cost to the outstanding mortgage.

Moving home and Paying it off early
Early Repayment

Lenders base their products on the assumption that the mortgage will be repaid on death or the borrower(s) moving into long-term care.

Repaying the mortgage early will have financial penalties.  Some are fixed from outset and depend upon how early – for instance, some will cease after 5-years.

Many, have much more complex calculations, which are dependent upon the long-term (15-year) gilt rate index.  This type of early repayment charge can be a couple of hundred pounds or in thousands

When assessing the most relevant product for our clients, we spend time discussing and planning any potential for early repayment.  These are not designed to be short-term loans and it is imperative that expectations of timescale are fully discussed.
Moving house

Most Lifetime mortgages are portable, which means that should you wish to move, you can effectively move the mortgage to a new property.
The new property will need to have enough equity to meet the lenders criteria, failing that you might need to pay some, rather than all of it off.
This can be a very useful element, as you might wish to move closer to family, or downsize to a different area.

Tax and State Benefits
Income Tax
There is no income tax charge on money released from your home, however, if you subsequently invest or save any surplus, you might pay tax on any income generated.
State Benefits
Certain state benefits are means tested against the income an individual receives from investments and private pensions etc.  The monies provided from an equity release transaction could therefore reduce any benefits you might have been entitled to if you retain the monies in your own names.