Equity Release Explained

• ✓Lifetime mortgage (by far the most common), you borrow against your home and keep owning it. You don't usually make monthly payments; the loan plus interest is repaid when you die or move into long-term care, from the sale of the home. Some plans let you make voluntary payments to keep the interest down.
• ✓Home reversion, you sell all or part of your home to a provider for less than its market value, in return for a tax-free lump sum or income, while keeping the right to live there rent-free for life.

On a typical lifetime mortgage you don't make monthly repayments, so the interest is added to the loan each year and you then pay interest on that interest. This is compounding, and it means the amount owed can grow surprisingly fast, roughly doubling over a number of years depending on the rate.

Equity release is regulated by the Financial Conduct Authority, and providers that are members of the Equity Release Council follow extra standards that protect you:

• ✓No-negative-equity guarantee, you (or your estate) can never owe more than your home is worth, even if the debt grows beyond the sale price
• ✓The right to remain in your home for life, or until you move into long-term care
• ✓The right to move to another suitable property, taking the plan with you
• ✓On Council plans, the right to make penalty-free voluntary payments to manage the interest

Always check the provider is FCA-authorised and, ideally, an Equity Release Council member.

You cannot take out equity release without going through the proper process:

• ✓You must get regulated financial advice from a qualified equity release adviser before proceeding
• ✓You must use a solicitor for the legal work, giving you independent legal advice
• ✓A good adviser will explore whether equity release is right for you at all, and whether an alternative is better

Releasing a lump sum can affect means-tested benefits (such as Pension Credit, Universal Credit or Council Tax Reduction), because the cash counts as savings. Before committing, weigh up the alternatives:

• ✓Downsizing to a smaller or cheaper home, freeing up money without taking on debt
• ✓Checking you're claiming all the benefits you're entitled to, many older people miss out on Pension Credit or Attendance Allowance
• ✓A retirement interest-only (RIO) mortgage, where you pay the interest monthly so the debt doesn't grow
• ✓Help from family, a local authority home-improvement grant, or other borrowing

This guide is general information, not financial advice. Equity release suits some people well and is wrong for others, which is exactly why regulated advice is required before you can proceed.