Helpful information - addressing your queries about equity release
*Updated October 2023*
Healthier living and better access to medical care mean we’re all enjoying longer and more active lives. Planning for the long term can help ensure you have enough income to support your lifestyle now and over the years ahead.
A popular way of funding later life is to unlock some of the cash tied up in the value of your home. So, to help you understand the finer points of equity release, we’ve created these simple and helpful guides.
Here are some common questions that we get asked about equity release:
How does equity release work?
Equity release works by enabling UK homeowners over the age of 55 to borrow cash against the value of their home and without having to move out. There are two ways to do this – a lifetime mortgage and a home reversion plan, both of which are regulated by the Financial Conduct Authority.
Whichever equity release scheme you choose, the money you receive is tax-free and doesn’t have to be repaid until you die or move into full-time care. Your provider is usually repaid from the sale of your property.
The money you release is yours to do with as you like. For example, to help your children financially, pay off debts, make improvements to your home or to access extra funds to spend in retirement.
How does equity release affect benefits?
Equity release could affect state benefits, such as Universal Credit, Pension credit or council tax reductions, because they are means tested and the government uses your income and savings to determine what support you’re entitled to.
The cash you release from your home could be counted as income in a means test. For example, if you have more than £16,000 in savings, you’re not entitled to Universal Credit. So, if you release enough equity to push you over that limit, there’s a good chance you’ll no longer qualify for this support. Your equity release adviser can advise you on how releasing equity might affect any benefits you receive.
You can also get advice on how equity release may affect your entitlements from independent advice agencies such as local Age UK or Citizens advice, or see the Age UK website.
How long does the equity release process take?
In most cases it will take 6 to 10 weeks from the initial conversation with your equity release provider to the cash being paid into your bank account.
The process includes:
- your property valuation by a local independent surveyor
- the legal paperwork which will require an experienced equity release solicitor
It is mandatory to have a face to face meeting with a solicitor before taking out a plan and regular contact with your equity release adviser or provider.
The process strictly follows the Financial Conduct Authority's (FCA) guidelines and ensures that your equity release loan is secured safely on your property.
How does equity release affect inheritance tax (IHT)?
Equity release affects inheritance tax by reducing the value of your estate when you die. As equity release is usually repaid from the sale proceeds of your home when you die or move into long term care, there will be less money left to pass on to your beneficiaries.
40% inheritance tax is payable on the value of your estate over £325,000 (as at 2023), so the smaller your estate, the smaller the IHT bill to be settled. Releasing equity from your home may even keep you under the threshold altogether.
You’re also free to gift some of the money you release to loved ones during your lifetime. Just be aware that if you die within seven years of giving the gift, the money could be subject to inheritance tax.
You can find out more about how inheritance tax works on the UK Government website.
If you need further information about how equity release may affect your IHT planning speak to your specialist equity release advisor.
How easy is it to release equity in your home?
It is relatively easy to release equity in your home, but it’s not a decision to be taken lightly.
To qualify for equity release, you need to own your home and be aged 55 and over. Your property must be worth at least £70,000 and you must clear any outstanding mortgage when your plan starts. You can use the funds from equity release to repay any mortgage.
Your eligibility for equity release does not depend on your income and there are no credit checks. However, other criteria such as your age, the type of property you live in and how it's constructed could affect your suitability or the amount you could borrow.
How much can I borrow on my home?
How much you can borrow on your home will depend on your age when you apply, the value of your home and your equity release provider’s lending criteria. Typically, you can borrow a minimum of £10,000 and somewhere between 20% and 60% of your home’s value.
Some equity release providers will lend you more or offer a lower interest rate if you suffer from a life limiting medical condition.
Use our equity release calculator to work out how much money you could borrow.