Equity release is a financial product that allows homeowners to be paid out some of the equity they have accumulated in their home in cash, in order to fund their current spending. It differs from a standard mortgage in that there are typically no payments to make during the lifetime of the homeowner.
The amount you can borrow with an equity release mortgage is usually between 20-60% of your home value, but this will depend on several factors.
The most important of which are:
The type of equity release product you choose
Equity release comes in two flavors – a lifetime mortgage and home reversion. Lifetime mortgages are more popular in the UK.
Your age
The minimum age for a lifetime mortgage borrower is usually 55, and 65 for home reversion. Older borrowers can release a greater percentage of their home equity, as they have lower life expectancy. Your health will also be a relevant factor, and borrowers with serious health conditions will be able to release substantially more equity.
The value of your house
If you have an outstanding traditional mortgage, this will reduce the amount you can borrow. If you do not hold all the equity in your home, many lenders will require you to pay off your existing repayment mortgage using the funds from equity release. The location and condition of your house will also be considered. Brick-and-mortar freehold properties in good condition are best placed to obtain equity release financing. It can be more difficult to obtain equity release on non-standard construction types such as timber-framed or thatched roofed. Houses in flood zones or in commercial areas, as well as houses with shared ownership may also face challenges, as these properties can be difficult to resell in due course. Leasehold properties will not normally face excessive difficulty provided they have a long lease, with many lenders asking for 75 years or more. Most lenders will have a minimum home value as well, often around £70,000.
Level of borrowing
The minimum level of borrowing is typically £10-15,000 depending on the lender. According to the Equity Release Council, the trade body for equity release lenders, the average lump sum lifetime mortgage was just over £130,000 in the third quarter of 2022.[1] Typically equity release lenders will place a number of restrictions on the use of the house to protect the value of their investment, such as it being continually maintained and insured, not rented out and not left vacant for appreciable periods. For this reason, it is not possible to obtain equity release on a second home or holiday home, only on your main residence. It is worth noting that this does close off some additional avenues for earning money through your home in the future, such as renting a spare room.
A reputable equity release adviser can work with you to assess your suitability for equity release and help you to find the most appropriate product for your needs.
[1] https://www.telegraph.co.uk/financial-services/retirement-solutions/equity-release-service/equity-release-calculator/ (accessed 11.03.23)
