Should you equity-release?

Equity release is a way to unlock the value of your property and turn it into cash. You can do this via a number of policies which let you access – or 'release' – the equity (cash) tied up in your home. It's only available to those aged 55+, though you don't need to have fully paid off your mortgage.

As a rule, you can either take the money you release in one lump sum, or in smaller amounts over time (known as 'drawdown'), or a combination of both. In 2023, homeowners turned more than £2.6 billion of property wealth into cash using equity release.

Yet make sure you equity release it in the right way. If you get it wrong, it can prove eye-wateringly expensive (we'll discuss the cost of equity release later).

The most common form of equity release is a mortgage that isn't paid off until you die. So if you have no one to leave your assets to, it's a decent, though expensive, route to raise cash. If you do have people to pass assets to, equity release generally means there will be less for them to inherit. Then again, it is your money, so prioritise your own standard of living.

What can equity release be used for?

Equity release can be used for many different purposes. Popular reasons include home improvements – such as a new kitchen – clearing an outstanding mortgage or other debts (though the longer you live, the more likely equity release debt will eventually eclipse the size of the debt you originally cleared), buying property – such as a second or holiday home – boosting retirement income, holidays and gifts for family.

What are the different types of equity release?

The products available to free up cash fall in to three different camps:

1. Lifetime mortgages – for those aged 55+

This is the most popular form of equity release. Here you borrow some of your home's value at a fixed or capped interest rate. 

You can either take the money all at once in a lump sum, or you can take it in smaller chunks as and when you need it – something known as drawdown. If you choose the drawdown option, interest will only be charged on the cash you've actually taken, and not on the money you're yet to draw down.

With both forms of lifetime mortgage, if you don't make any repayments then the interest will compound rapidly, as the amount you owe is increasing all the time. These days however, most lifetime mortgages allow you to make repayments, be that repayment of the capital or just the interest, meaning you can reduce the overall cost. Typically there'll be a cap on the amount you can overpay by, normally 10% of the loan value each year.

A lifetime mortgage is different from a standard mortgage. If this is what you're looking for, check out our Cheap mortgage finding guide for tips.

2. Home reversion plans – for those aged 60+

A less popular option than lifetime mortgages, here a provider pays you a tax-free lump sum for a portion of your home at below market value. You can then live in the property (rent-free) until you die. When it's sold, the proceeds are split based on the percentage you own and the lender owns. So if your property value rises significantly, so does the amount it gets.

For example, if you sell a 40% share in a £400,000 property in return for a lump sum of £80,000, this cash you receive is at a huge discount to the £160,000 this share is actually worth (at current market prices) – mainly because the provider will have to wait many years to get its money back. Years later, when you die, if your home is eventually sold for £500,000, the provider would then be entitled to £200,000, which is equivalent to 40% of the sale proceeds.

So home reversion plans are better if property prices stay flatter, worse if they rise substantially.

3. Retirement interest-only mortgages (RIOs) – similar to lifetime mortgages but you MUST make monthly payments