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Is Equity Release a good idea?

Is Equity Release a good idea?

Jenni Hill
Last Updated 10 August 2023

If you’re approaching retirement or you’ve already put your feet up, you may be looking for additional sources of income or a lump sum of cash. Equity release could be an option, particularly if your home’s value has increased significantly over the years. You’ll be able to keep living in your home until you pass away or move into care, while accessing the money you need for big life changes or day to day expenses. 

Equity release is a big decision, though. So it’s important to do plenty of research first and seek professional advice from financial advisors, mortgage brokers and solicitors. 

In this guide, we’ll run you over whether equity release is a good idea, as well as the benefits, risks and alternatives.

In this guide

How safe is equity release?

Equity release from a reputable provider is safe. If you or someone you know has used equity release in the past, you might have a negative view of it. Even 10-15 years ago, there weren’t many products on the market and many customers had to settle for quite expensive deals. There were many horror stories about homeowners falling into negative equity as their interest mounted up.  

Today, there’s more choice and flexibility. With so many different options to choose from, equity release providers are more competitive than they were before. This makes it easier to find affordable equity release products that suit your needs. 

Customers are better protected, too. No matter which equity release product you choose, it’ll be regulated by the Financial Conduct Authority (FCA). Every lender that offers this type of product has to be a member of the Equity Release Council. Advisers have a responsibility to give you the best possible advice and ensure you’re well protected, making equity release safer than ever.

Which type of equity release is best?

There are two main types of equity release: a lifetime mortgage and a home reversion plan.

We talk about them in more detail in our What is equity release blog, but just to recap…

Lifetime mortgages are fairly similar to residential mortgages. You’ll keep full ownership of your home but a charge will be placed on your property for the equity release loan. A home reversion plan lets you access more cash than a lifetime mortgage, but you’ll need to sell all or part of your home.

Home reversion plans are less popular than lifetime mortgages, but the right option for you will depend on your circumstances and goals.

Is there a catch with equity release?

There isn't a catch with equity release, but there are some benefits and risks to consider.

Risks and benefits of equity release

What are the benefits of equity release?

You’ll get access to a lump sum or regular payments — tax free 

You can free up money without having to downsize or move to a cheaper area

You won’t need to repay the money until you pass away or move into care

You can move house if you want to, if you choose a portable plan

You’ll never owe more than your home’s worth, as long as you choose a lender with a no negative equity guarantee

You can potentially reduce the amount of inheritance tax payable on your estate (you should speak to a tax adviser or financial planner to learn more)

What are the risks of equity release?

If you make any large gifts to family or friends, they may have to pay inheritance tax in the future

If you choose an interest-roll up mortgage, the amount you owe will quickly increase over time

Your family may receive little or no inheritance when you pass away

You may have to pay an early repayment charge if you repay the loan early ⁠— even if you don’t pay it off in full

It can affect your entitlement to means-tested state benefits

You might like: How to reduce your Inheritance Tax liability

Can I avoid early repayment charges?

If you repay a lifetime mortgage early, you may face early repayment charges (ERC), just like you would with other types of mortgage. 

These charges vary from one lender to the next. Some lenders will charge higher fees the earlier you repay. So you might be charged 5% in the first 5 years, 4% in years 6-10 and 3% from 10 years onwards. Some lenders charge much higher rates than this though, potentially up to 25% of the amount you initially borrowed.

There are certain exemptions which can help you avoid early repayment charges these include:

  • Downsizing protection - Some equity release plans will let you downsize without incurring any ERCs
  • Significant life event exemption - this’ll let you repay your equity release balance within three years of the first homeowner passing away or entering permanent long-term care

Can I sell my house if I have equity released?

One of the benefits of lifetime mortgages is that you can sell your home. You can either port your existing lifetime mortgage or home reversion to your new property (as long as you’re on a portable plan) or take out a new equity release product. 

Porting pros

😊 The process might be quicker than taking out a new product

😊 You won’t need to pay for more legal advice

Porting cons

😔 You may have to pay an upfront valuation fee

😔 You may have to pay additional costs such as the lender’s solicitor fees

New equity release pros

😊 You may find more competitive equity release deals from other lenders

😊 You may find a suitable lender who’ll cover any fees for you

New equity release cons

😔 You may have to pay an Early Repayment Charge

😔 You’ll need to pay for legal advice

Read more: What is porting a mortgage?

Is equity release worth it?

Equity release is becoming increasingly popular, particularly among retirees who’ve benefited from rising house prices. Releasing equity from your home could offer many advantages, but it won’t be right for everyone. If you’re wondering if equity release is worth it, here are a few things to think about:

Equity release could be worth it if…

✅ You’re unlikely to have enough money in retirement to meet your needs

✅ You don’t want to downsize or you’re unable to

✅ You’re happy to reduce the amount your family will inherit when you pass away

✅ You’ve spoken to an independent financial advisor and they’ve recommended equity release

Equity release might not be worth it if…

✅ You have enough income and savings to meet your retirement needs

✅ You’re able to downsize your home

✅ You want your family to inherit as much as possible when you pass away

✅ You’ve spoken to an independent financial advisor and they’ve suggested there may be better alternatives to equity release


Top Tip

Some people make the mistake of taking out a lifetime mortgage and assuming they’re set for the rest of their life. But as with any type of mortgage, it’s a good idea to review it every few years and speak to a mortgage broker for advice. If interest rates fall, you may find yourself paying more for your lifetime mortgage than necessary.

What are the alternatives to equity release?

There are many alternatives to equity release: 

1. Remortgaging

Instead of an equity release, you may be better suited to a remortgage. By remortgaging your home, you can release equity from it without having to use your property to repay the debt when you pass away. Unlike equity release, you’ll need to start repaying the new mortgage immediately. You should factor the monthly repayments into your budget to make sure they’re affordable for you long-term. 

2. Deposit Boost

If you want to free up capital to help family members get onto the property ladder, a Deposit Boost could be just the thing you need. This involves two separate mortgages. 

Mortgage 1: The first mortgage is taken out by you. Its purpose will be to release equity from your home to then be used as a loved one’s deposit. 

Mortgage 2: The second mortgage is taken out by your family member. They’ll use the gifted deposit along with their own mortgage to buy their first home. With a larger house deposit, your loved one can get on the ladder sooner, access lower mortgage rates, or even afford a larger property. In fact, on average our customers save £17,000 in interest over 5 years by using a Deposit Boost to bolster their house fund.

Learn more: How can I help my child buy their first home?

You might also like: What are the benefits of an early inheritance?

3. Retirement Interest Only Mortgage

Another alternative to equity release is a Retirement Interest Only Mortgage. Introduced by the Financial Conduct Authority (FCA) in 2018, RIO mortgages allow you to borrow well into your retirement. 

With a RIO, the interest rates tend to be lower than equity release and more importantly, you’ll pay the interest each month so there’s no rolled-up interest charge at the end. There are many benefits to RIOs - to find out more, take a look at our guide to RIO mortgages and how they are different from equity release

Still unsure which option to go with?

If you’re feeling a little overwhelmed with all these options, don’t struggle in silence. Let us help you. Our team of experienced and award-winning mortgage brokers will listen to all your questions and help you every step of the way. Get in touch with our team today to get started.