What are the pros and cons of equity release?
Leaving a home filled with memories can be a daunting prospect. For homeowners aged 55 and over who have considered downsizing but decided against it, equity release may offer a viable solution.
This option allows you to remain in your home while accessing funds to help support your finances.
Whilst equity release can provide valuable support for enjoying retirement to the fullest, it is essential to weigh the pros and cons.
Radio Times have teamed up with equity release specialists Age Partnership Plus to help you discover more about equity release and if it could be right for you.
Calculate how much you could unlock >
Pros of equity release
- Unlock tax-free cash from your home
- Continue owning 100% of your home1
- No regular repayments required
- No negative equity guarantee
- Flexibility
Unlock tax-free cash from your home
The money you release from your home is tax-free because it is classified as a loan rather than income. When you release equity from your home, you are borrowing against its value, which means you are not receiving taxable income. The money you unlock is yours to enjoy spending once you’ve repaid any existing mortgage, which is a condition of equity release.
How much you could access from your home depends on factors such as your property’s value and the age of the youngest homeowner, along with your needs for the money. There are also medically enhanced equity release plans which means you might be able to access more if you have certain health conditions, should you require it. A free no-obligation quotation from an equity release advisor at Age Partnership Plus will help you discover exactly how much you could unlock.
Continue owning 100% of your home
The most popular plan is a lifetime mortgage which allows you to continue owning 100% of your home. With this type of plan any money released, plus accrued interest, is repaid upon death or moving into long-term care.
Equity release may also involve a home reversion plan, which is where you sell all or part of your home, but you can continue living in until you die or move into long-term care.
Both types of plans will reduce the value of your estate and impact funding long-term care.
No regular repayments required
Equity release doesn’t require you to make regular monthly repayments if you don’t wish to. This is because the money you borrow, plus accrued interest, is repaid upon death or moving into long-term care.
Your plan may allow you to make voluntary payments subject to certain limits which some people prefer to do to keep the interest which accumulates down. It’s worth checking the details of your plan as early repayment charges may apply above a set value.
Find out more with your free equity release guide >
Flexibility
There are flexible equity release options to give you choices. Along with the flexibilities detailed above around making repayments, you can also choose how you’d like to take the money you release. You could choose to take it as lump sum or smaller amounts over time, known as drawdown.
Taking a lump sum of money could be more suitable if you’re wanting to make a big one-off purchase such as a new car or providing a one-off gift to loved ones. A drawdown might be more appropriate if you’re looking to consistently supplement your retirement income. With a drawdown plan, you only pay interest on the money when you take it, which can avoid unnecessary interest accumulating if you don’t plan on spending the money straight away.
No negative equity guarantee
Products that meet the Equity Release Council’s standards include a no negative equity guarantee. In the unlikely event that your property's value decreases during the term of your plan, resulting in it not being sufficient to cover your outstanding balance, this guarantee ensures that your estate will never owe more than the property's sale price. Any remaining loan balance will be written off.
Plus, with some plans you can also safeguard a portion of your home’s value to guarantee an inheritance for loved ones.
Find out how much you could release >
Cons of equity release
- Accumulation of interest
- Impact on benefits
- Reduced inheritance
- Costs and fees
- Complexity
Accumulation of interest
Equity release typically involves interest building up on the amount you borrow.
With a lump sum plan, the interest rate is set when you take out the loan so you know exactly how much interest you will be paying over the life of the loan. With drawdown, you only pay interest on the money when you withdraw it, and the interest rate applicable to your withdrawal could be higher or lower than your initial interest rate, depending on the rates at the time.
Impact on benefits
Advice is required before proceeding with equity release so that your advisor can take the time to assess whether equity release will have any impact on your means-tested benefits, either now or in the future.
The additional money from releasing equity might push you above the eligibility threshold for some benefits, and it’s important to know this before proceeding.
Reduced inheritance
Equity release may involve a home reversion plan or a lifetime mortgage, which is secured against your property and will reduce the value of your estate. This means there will be less wealth to pass on to loved ones in the future.
Some people may intend to fund any long-term care that is needed in future with the proceeds from a house sale, and it’s worth considering this will be impacted by releasing the money tied up in your home.
It’s important to discuss equity release with your loved ones before going ahead, and a reputable equity release advisor will always encourage you to do so.
Costs and fees
Equity release can be associated with various costs including arrangement fees, valuation fees, and legal fees. Through the Radio Times equity release service, Age Partnership Plus provide initial advice for free and without obligation. Only if your case completes would an advice fee of £1,995 be payable. Other lender and solicitor fees may apply.
Complexity
Equity release can be a complex and long-term financial commitment, making it crucial to seek appropriate advice. Consulting with a qualified financial advisor, such as those available at Age Partnership Plus, can help you make an informed decision that aligns with your long-term financial objectives.
Find out more with your free guide written by Paul Lewis
1You only continue to own your own home with a lifetime mortgage
The Radio Times equity release service is provided by Age Partnership Limited. Radio Times is a trading name of Immediate Media Company London Limited which is an Introducer Appointed Representative of Age Partnership Limited, 2200 Century Way, Thorpe Park, Leeds LS15 8ZB. Company registered in England and Wales No. 5265969. VAT registration number 162 9355 92. Age Partnership Limited is authorised and regulated by the Financial Conduct Authority. FCA registered number 425432 and is trading as Age Partnership Plus.