What is equity release?

Equity release schemes are a means for older homeowners – typically over 55 or 60 – to release the cash tied up in the value of their home. The most common type of equity release plan is the lifetime mortgage, which allows homeowners to borrow money secured against their property. Unlike a normal residential mortgage, on a lifetime mortgage, the borrower doesn’t have to make monthly repayments to the lender. Instead, the amount borrowed, plus the interest that accumulates on the loan, are paid back from the proceeds of the sale of the property typically when the homeowner dies or movies into a residential care home.

Lifetime mortgage products vary between lenders. Some will release the equity as a single lump sum, while other products may allow smaller equity releases to be drawn down over time. Some products may offer the ability to make payments towards the accruing interest, rather than it rolling up and being repaid on the sale of the property.

Another type of equity release scheme, known as a home reversion plan, is also available. Home reversion involves selling a percentage of your home – from 25% to 100% – to the plan provider at a price below market value, in exchange for either a lump sum, a regular income, or in some cases a combination of both. With a home reversion plan, you can continue to live in your home without having to pay either rent or mortgage repayments in your lifetime. The lender is paid the corresponding percentage of the proceeds from the sale of your home again typically after you die.