This week Mark Gregory is going back to basics and is helping a reader who would like to know what equity release is and how it works
The Question
I own a home which is valued at £325,000 but the money is just sitting there doing nothing and I’d like to ‘enjoy’ it. Therefore, I’m considering releasing some equity. How does it work and would I be eligible? I’m 63 and own my home outright.
Mark’s Answer
Thank you for your question – it’s one we’re often asked. With property wealth playing such a key role in retirement planning, it’s no surprise that many people want to understand how equity release works.
At 63 and owning your home outright, you may well be eligible – but let me explain how it works first.
There are two types of equity release products: Lifetime Mortgages and Home Reversion Plans.
1. Lifetime Mortgages
By far the most popular option (used in around 99% of cases), a Lifetime Mortgage allows you to borrow a tax-free lump sum, or take smaller amounts as needed, secured against your home. Crucially, you retain full ownership of your property.
You’re not required to make any repayments, but you can – many modern plans offer flexible options to pay all, some, or none of the interest.
If you choose not to make payments, interest rolls up (compounds) over time and is repaid, along with the original loan, when your home is eventually sold – usually when you pass away or move into long-term care.
Plans today come with useful features like:
- Fixed interest rates – gives peace of mind knowing exactly what the future balance would be
- Inheritance protection – ring fence a percentage of your property value for your beneficiaries
- Downsizing protection – should you move house and wish to repay the mortgage with no penalty
- Fixed early repayment charges – the majority of plans now have defined ERCs providing transparency
2. Home reversion plans
Less commonly used today, a Home Reversion Plan involves selling part or all of your home in exchange for a lump sum or regular payments. You continue living there rent-free for life under a lifetime tenancy agreement, but you no longer own the full property.
The amount you receive is below market value, as the provider will have to wait many years to realise their share.
3. Other lending options
You may also want to explore other later life lending options, such as Retirement Interest-Only Mortgages (RIOs) – which could be better suited to your needs depending on your income and future plans.
I would therefore need additional information to gauge whether these type of mortgages would be beneficial for you.
The importance of obtaining advice
Given the range of choices and features available, it’s vital to get independent, whole-of-market advice.
At Equity Release Supermarket, all our advisers are FCA-authorised and offer expert, fee-free guidance right up until completion. You’re only charged if you go ahead and complete a plan you’re happy with.
For a more detailed overview, you might find our dedicated guide helpful: What is Equity Release?
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
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