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Equity release is one way for UK homeowners aged 55 or over to release tax-free cash from their home. However, there are common concerns and misconceptions that some believe about how the product works.
Modern equity release products are regulated, and many lenders and providers are members of the Equity Release Council, the industry trade body. This means that in the right circumstances, equity release products will come with safeguards and protections.
This guide will explore the equity release facts and help to separate them from the myths.
What are the most common equity release myths?
Many myths come from an outdated understanding of products and features available with modern equity release. The most common can include that:
- You will lose ownership of your home
- You will leave debt to family
- You will be unable to move home
- There will be no inheritance left
- You can’t make monthly payments
Will I still own my own home?
If you release equity with a Lifetime Mortgage, you won’t have to sell your home or move out in your lifetime. However, if you use a home reversion plan, you are selling some or all of your home to a provider.
Focusing on Lifetime Mortgages, the most common equity release product, you remain the legal owner of your home. This means the lender places a charge on your home, like with a standard mortgage.
Additionally, with products that meet Equity Release Council standards, you have the right to continue living in your home until the last homeowner dies or enters long-term care.
Can I move home if I take equity release?
Yes. Equity release products are flexible, so you could move to a new home and take your mortgage with you, as long as it meets the lender’s criteria. You could also sell your home and repay the cash you unlocked with equity release, although you may need to pay early repayment charges.
Could I owe more than my home is worth?
No. Products that meet Equity Release Council product standards come with a 'no-negative equity' guarantee. This means you'll never owe more than the value of your home, provided you meet the terms and conditions of your loan and the home is sold for the best reasonable price.
Equity release with a Lifetime Mortgage will reduce the value of your estate and this guarantee can help ensure there is a maximum limit on the overall impact.
Is there anything in place to help protect customers' interests?
Equity release is regulated by the Financial Conduct Authority (FCA), and advice is required before you can proceed with doing it. Getting the right advice means that, if you choose to release equity, you will do so while understanding the risks and potential benefits in advance.
Additionally, the Equity Release Council, the industry trade body for equity release, has a list of product standards that its members must offer with all products.
These include:
- The option to fix your interest rate for life.
- The guarantee that you’ll never owe more than your home is worth, provided your home is sold for the best obtainable price.
- The right to move home in the future and bring your equity release product with you. The new property must meet the lender's criteria.
- The guarantee that you’ll still own your home and can live in it for the rest of your life, or until you move into long-term care.
- The right to make optional payments towards your Lifetime Mortgage.
Can I release equity while I still have a mortgage?
Yes. One of the most common reasons people decide to release equity is so they can pay off an existing mortgage. However, you'll need to pay your mortgage off first before you can use the money for anything else. As part of the process, your solicitor will receive the equity released and transfer your funds to clear your existing mortgage, all as a part of the same transaction.
If you're thinking about how much money you could release, try out Royal London Equity Release Advisers' equity release calculator today.
Are equity release interest rates very high?
Equity release interest rates can vary depending on your personal circumstances. As there's no standard interest rate, your adviser will search for an interest rate that is right for your circumstances. Royal London Equity Release Advisers data suggests that average interest rates generally range from 6.3% - 10%.
The interest rate on a Lifetime Mortgage is typically fixed for life. It will be added to the amount owed and compounded over time, meaning interest is paid on interest. However, you can choose to make optional payments to help with managing the costs.
Illustrative example:
A UK homeowner releases £90,000 from their home with a 6.7% interest rate. Let’s look at the difference between making no payments and paying £100 per month:
| Years since release | No payments | £100 monthly payments |
| 0 | £90,000 | £90,000 |
| 5 | £124,470 | £117,610 |
| 10 | £172,142 | £155,795 |
Does equity release stop me from leaving an inheritance?
No. With equity release, you're only unlocking some of the value of your property, not all of it. When your house is sold after you've passed away or entered permanent long-term care, the amount you borrowed, plus interest, is usually paid back from your estate.
As you've released equity, the value of your estate will be reduced. However, it is possible to ensure that you still have an inheritance to leave for loved ones.
With some products, you can ring-fence a portion of your home's value as a guaranteed inheritance. This will reduce the pool of equity available to you. You might also choose to make voluntary payments to help cover all or some of the interest or reduce the amount that you owe. By doing this, you can aim to keep more of your home's value available to leave to your loved ones.
Leaving an inheritance is still possible without this feature, although how much will depend on how much is borrowed and the interest added over time.
Do I need to get financial advice?
If you're thinking about releasing equity from your home, you'll need to speak to a qualified equity release adviser. There are different types of equity release products that will suit different people, and an adviser will be able to help talk through your options.
An adviser can also walk you through the risks, including that your estate will be reduced, and that your entitlement to means-tested benefits may be affected.
The information on this page has been provided by Royal London Equity Release Advisers to help you understand more about equity release. They are authorised and regulated by the Financial Conduct Authority to give equity release advice. Royal London Group introduces customers to Royal London Equity Release Advisers who will make recommendations based on individual circumstances, after considering products from the whole market.
You can get expert advice on Lifetime Mortgages, Retirement Interest-Only Mortgages and traditional mortgages with the help of Royal London Equity Release Advisers. Use their online equity release calculator to find out how much you could release from your home with a Lifetime Mortgage.
More on equity release
“Royal London Equity Release Advisers” is a trading name of Responsible Life Limited. Responsible Life Limited uses Royal London branding under licence from Royal London Marketing Limited. “Royal London”, the “Royal London logo” and “Royal London Equity Release” are registered trade marks of The Royal London Mutual Insurance Society Limited. Royal London Marketing Limited and The Royal London Mutual Insurance Society Limited do not provide regulated mortgage advice.
Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register under reference 610205. Registered in England and Wales under company number 07162252. Registered office: Princess Court, 23 Princess Street, Plymouth PL1 2EX.
Responsible Life Limited is a wholly owned subsidiary of the Royal London Group who may benefit if you choose to take regulated mortgage advice. Being a wholly owned subsidiary of the Royal London Group does not alter Responsible Life Limited’s regulatory responsibilities.
If you choose a mortgage with required payments during your lifetime then your home may be repossessed if you do not keep up with the payments. Borrowing with a Lifetime Mortgage or Retirement Interest-Only Mortgage will reduce the value of your estate. Receiving a cash lump sum may also affect your entitlement to means-tested benefits. Think carefully before securing other debts against your home.
To understand the features and risks, ask for a personalised illustration. Your adviser will talk through the setting up costs of a mortgage. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,890.