How to release equity

🕑 6 minute read

Equity release is a way of taking advantage of the value you’ve built up in your home. If you’re over 55, you might be able to access money that you’ve accumulated by paying off your mortgage.

What is equity release?

Mortgage equity is essentially the difference between what you owe on your mortgage and the current value of the property.

For example, if your home is worth £250,000, and you have £100,000 to pay on your mortgage, you have an equity of £150,000.

Releasing equity allows you to access the money equity you have invested into your home. Rules for equity release will depend on your lender, but usually you’ll need to be over 55 to release equity.

To qualify for equity release:

  • Your home must be worth £70,000 or more
  • Your home must be in fair condition
  • The home you wish to release equity from must be your primary residence, lived in for more than half the year
  • You must own the home

How does equity release work?

Equity release works by borrowing cash against the value of your home. There are two ways to do this – a lifetime mortgage and a home reversion plan.

Lifetime mortgage

Lifetime mortgages allow you to release some of your home value to a limit, while still being the homeowner. This cash is tax-free and able to be used as you please.

You can pay the loan’s interest as you go, or as a final sum at the end. However, this could impact your available inheritance. You repay the loan when you, or the last homeowner on the deed, pass away or moves into full-time residential care.

Home reversion

With home reversion, you sell a share of your property in return for a lump sum. You will still live in your home and know what percentage of the home you have sold. Home reversion plans can have consequences in the future. When your property sells, any sales get divvied according to the split of the property.

If you’re under the age of 55, you will most likely not be able to access these types of equity release. You might be able to borrow more on your mortgage.

How much does equity release cost?

There can be various fees associated with equity release, though your main costs may include any solicitors’ fees if you opt to use one or any compounding interest if you do not pay it off. While it costs nothing, a home reversion plan requires selling a portion of your home, which could be considered a form of cost.

How long does equity release take?

Equity releases are not quick, and you shouldn’t rush into them. It may take between six to eight weeks to release equity from your home, assuming it all goes smoothly.

As releasing equity is a significant decision, there are usually several steps, such as receiving advice and submitting your application, having a property valuation, an offer, legal advice, and the release.

If you’re unsure about equity release, seek impartial financial advice before moving forward.

Considerations before releasing equity

You'll owe more money

Consider how this might affect you long term. If you haven’t paid off your property and decide to borrow, you could see increased interest rates and owe more money on your mortgage. This could mean a longer time paying it off, and more interest paid overall.

Less inheritance

While it’s important to prioritise your standard of living, it’s worth noting that releasing equity can sharply reduce the amount of inheritance you could otherwise pass on.

Lifetime mortgages don’t resolve until you die, meaning that the interest can add up quickly and will get deducted at the point the property sells.

Consider downsizing instead

Instead of equity release, downsizing could free up money, and you still own 100% of the property (if you buy again outright).

Downsizing is an option for those who don’t want to release any equity or take additional loans but would still like to live comfortably.

If you’ve paid your mortgage off, selling your home and buying a smaller, cheaper property outright could mean you free up money from the sale. However, it’s not without its cost, as moving house means moving fees and conveyancing fees.

Use savings or credit

If what you need the money for is not urgent, savings are the safest, cost-free option to pursuing what you want.

If you want to borrow smaller amounts, there are lot of borrowing options that might be available to you.

Calculators and tools

We have a range of mortgage calculators to help you:

  • Find out how much you could borrow from Halifax
  • See how much you could save if you make overpayments on your mortgage
  • Get an idea how a change to the Bank of England Base Rate could affect your monthly payments
Use our calculators and tools

Speak to someone

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