How does equity release work?

Equity release is a way to unlock the value of your home. If you’re aged 55 or over you can take out cash, tax-free. You can do so without having paid off your existing mortgage, however this must be repaid from the money you release, and you don’t have to move out of your home.The loan is repaid using the proceeds of your home’s sale after you or the last remaining borrower dies or goes into long-term care.

With equity release you don’t need to worry about having to meet monthly repayments. This might be used for something specific, such as planning for your retirement, helping out family members or to make improvements to your home.

You can release equity in one lump sum or in smaller amounts over a period of time (known as drawdown). The amount you’re able to release is based on how old you are and the value of your home.

There are two types of equity release:
 

  • lifetime mortgage
  • home reversion plan - (we don’t offer Home reversion plan through Scottish Widows Bank)

Lifetime mortgages

If you agree to a lifetime mortgage, you borrow money against the value of your home. It enables you to release a tax-free percentage of equity in the property, with you remaining as the homeowner.

As the name suggest, a lifetime mortgage can last for the rest of your life. Interest rolls up over the life of the mortgage and is added to the amount you have borrowed. This could be a factor if you were planning to leave any inheritance for family members or beneficiaries.
 

Home reversion plans

If you decide on a home reversion scheme, you sell all or a part of your home in return for money. You stay in your home, but as a tenant. You can take it as a cash lump sum, regular income or both. When your home is sold, the reversion company receives the proceeds, or a share of proceeds if you sold part of the property. 

 

How much can I borrow with equity release?

How much money you can release as equity depends on several factors. 

To help decide, a lender will take a look at:

  • The value of your property – this will be determined through a professional valuation.
  • Your age and health will be considered – If you’re making a joint application, it will be based on the youngest applicant.
  • Type of property – such as listed building status and the type of material your home is made from.
  • Debt secured against the property – the amount of outstanding mortgage.

You can receive money raised through equity release as a lump sum or as a drawdown, which is smaller amounts over a period of time.

Equity release plans are repaid when the last borrower dies or enters long-term care. You may repay early but could receive an early repayment charge (ERC).

Equity release costs

Equity release may be a great option if you’re 55 or over and looking for a cash injection to fund retirement plans. But you also need to consider the costs involved. This can include:
 

  • Surveyor’s valuation
  • Solicitor fees
  • Lender’s application
  • Advice fees
  • Completion costs
  • Interest
  • Early repayment fees

Some providers offer free valuations, conveyancing and money back towards legal fees. 


What are the benefits of equity release?

There are many benefits to equity release, including:
 

  • You can pay for home and garden improvements – this could add value to your property and improve your quality of life
  • You could buy a new home – this could be a second home
  • You could pay off an existing mortgage and/or any debts – as you don’t need to make monthly repayments with equity release, this may be a good option
  • You could help family – whether you choose to leave inheritance money, or gift an amount now, helping children or grandchildren when important life stages are around the corner
  • You could go on holiday – now could be the ideal time to tick off destinations on your bucket list
  • You could purchase a new car – updating your vehicle can feel harder to reach as you approach retirement.
     

Important considerations for equity release

A lifetime mortgage has its advantages and disadvantages, just like any major financial decision. It’s important to understand the features and benefits before you decide if equity release is a good idea for you.
 

Equity release considerations

  • You can take a cash lump sum, or a lump sum and then smaller amounts over time.
  • You will continue to own your home until the mortgage needs to repaid upon death or long term care of the last surviving borrower. 
  • You can set aside some of your home’s value to be passed on as inheritance however this may be reduced if you take a lifetime mortgage.  
  • No monthly payment is required but interest will continue be added to the amount owed. 
  • You will have the right to move to an alternative  property (subject to lending policy and criteria at the time) without having to pay any early repayment charges. 
  • Taking out a lifetime mortgage could affect your entitlement for means-tested benefits.
  • You can make some overpayments over the life of the mortgage without penalty but, early repayment charges may be payable if you want to repay more or repay the mortgage in full.  These do not apply on death or moving into long term care. 

Before you decide whether to release equity on your home, there are additional considerations you should think about.

  • If you claim benefits, you must inform the Department for Work and Pensions (DWP) or council about the money you get from any equity release. It can affect the amount of benefits you receive.
  • Means-tested benefits may be affected when you take out a lifetime mortgage. That’s because your income and capital are used to decide whether or not you’re entitled to access benefits such as Pension Credit. Taking out a lifetime mortgage may change your eligibility for benefits so you should ensure that you check this before going ahead.

No negative equity guarantee

Products that meet the Equity Release Council’s standards are required to have a No Negative Equity Guarantee. This is an assurance that your estate will never owe more than what the property is worth when it’s sold. When your home is sold, any money left over at the end of your plan goes to you or your beneficiaries in accordance with your will. In the unlikely event your home’s value decreases significantly, it’s possible it may not cover the amount that’s owed. A no negative equity guarantee ensures the rest of the loan would be written off.


Are you eligible for a Scottish Widows Lifetime Mortgage?

In order to release equity, you must be eligible. Common requirements can include:
 

  • applicants are aged between 55-85
  • applying for a single or joint application (maximum age limit only applies to younger applicant)
  • the lifetime mortgage is for your main residence
  • the property is in England, Scotland or Wales
  • applicants already own the property
  • want to borrow more than £30,000.

Find out if you can apply for a Scottish Widows Bank Lifetime Mortgage by using our Lifetime Mortgage Checker.

Lifetime Mortgage Checker

If you qualify, we will arrange for you to talk to an expert Scottish Widows Bank Later Life Lending Adviser at a time that suits you.

Or, you can call us on 0345 122 1607. Our lines are open Monday to Friday 8am – 8pm, Saturday 9am – 4pm. We’re closed on Sundays and Bank Holidays.

 

Equity release FAQs

  • Yes, you can move home and take your lifetime mortgage to the new property so long as it meets our lending policy and criteria at that time. If your new property doesn’t meet our lending policy and criteria then your lifetime mortgage comes with Downsizing Protection which means that after 5 years of having your mortgage, you’re able to repay your loan in full without incurring an Early Repayment Charge.

  • Whether you choose a lifetime mortgage or a home reversion plan, the amount which you can release will be dependent on your age and the value of your home. You can use an equity release calculator, or contact an equity release provider.

  • It can take around eight weeks for an application for a lifetime mortgage to be completed, and for you to receive the funds. However this could be shorter or longer depending on your circumstances.