Equity Release

As retirement approaches, many individuals find themselves facing financial challenges. With the rising costs of living and potential shortfalls in pension income, homeowners often seek alternative solutions to unlock the value tied up in their properties. One such solution gaining popularity is equity release. in this advice area, we’ll delve into everything you need to know about equity release, its advantages, disadvantages, and considerations before opting for it.

What is Equity Release?

Equity release is a financial product available to homeowners aged 55 and over. That lets you unlock some of the value in your home, tax-free, without needing to move out. The most common type is a lifetime mortgage, where you borrow against your home’s value, which we will explain more about shortly.

There are two main types of equity release schemes:

Lifetime Mortgages

A lifetime mortgage is a long-term loan secured against your property, you can take a single sum or opt for a draw-down, releasing ad-hoc smaller amounts of money when you need it. Whatever you borrow will usually be repaid at the time of your death or if you move into long term care.

There is certain criteria that needs to be met and if you meet these criteria, you could be eligible for a lifetime mortgage if you are:

✅ A homeowner

✅ Are of qualifying age (typically over 55),

✅ A UK resident

Lifetime mortgage products can offer benefits including:

🏠 No Negative Equity Guarantee – This means you will never owe more than the value of your home, even if house prices fall.

🏠 ➔ 🏡 🛡️ Downsizing protection – This means if you decide to move, you can repay the outstanding balance of your lifetime mortgage without incurring penalties, even if the new property doesn’t qualify for the loan. 

❌💷 ERC free repayments – This means some lenders offer lifetime mortgages without ERCs, allowing you to repay as much as you want without penalty. 

🔒 Fixed ERCS – This means Fixed ERCs are calculated as a ‘fixed’ percentage of your loan amount, based on how long you’ve had your lifetime mortgage.

🏡🔄🏡 Porting available – This means that in most circumstances, you will simply carry over the loan from your old property to the new one and the terms of the equity release plan will remain the same.

💷🤝 Drawdown Facility – A drawdown facility in equity release allows you to access funds from your home’s equity in instalments, rather than a single lump sum. You only pay interest on the amount you’ve drawn, which can be more cost-effective than traditional equity release plans. It’s like an agreed overdraft on your house, where you can withdraw funds as needed. 

Home Reversion Plans

A home reversion plan is a type of equity release product that allows homeowners (usually aged 60 or over) to sell all or part of their home to a reversion company in exchange for a lump sum, regular income, or both — while retaining the right to live in the property rent-free for the rest of their life (or until they move into long-term care). These are less commonly offered.

Here’s how it works:

• You sell a percentage (or all) of your property to the reversion provider at below market value.
• In return, you get a tax-free lump sum, regular income, or a combination.
• You retain the right to live in the property for the rest of your life through a lifetime lease.
• When the property is eventually sold (after you pass away or move into care), the reversion company takes its agreed share of the sale proceeds, and the rest goes to your estate.

Key features

✅ You know exactly what share of your property you are giving up.
✅ You can usually ringfence a percentage of your home’s future value for your beneficiaries.
✅ You retain the right to stay in your home for life, rent-free.

Things to be aware of

⚠️ The amount you get is much lower than the open market value of the share you sell — often between 20%–60% of the market value, depending on your age and health.

⚠️ It reduces the value of your estate and what you can leave to your loved ones.

⚠️ If you want to sell the property or move, the plan will typically need to be repaid, which can be complicated.

Why are they less commonly offered?

In today’s market, home reversion plans are rarely recommended or offered, making up a very small percentage of the equity release market (the majority is now lifetime mortgages). This is because:

🔄 Lifetime mortgages are more flexible, widely available, and generally more popular with both advisers and clients.

🏷️ Home reversion plans can feel less attractive to clients as you give up legal ownership of part (or all) of your home.

📉 There are fewer providers offering reversion plans.

However, it’s important to mention them when discussing equity release, as they may suit specific needs — such as maximising cash release when inheritance concerns are low.

Is a Lifetime Mortgage right for me?

It is important to remember that an equity release product, like a lifetime mortgage, is a long term commitment. It will usually be repaid at the time of your death or if you move into long-term care. Here are just a few things to consider and discuss with an Equity Release Regulated Adviser:

➤ Downsizing and other forms of finance should be considered

➤ Lifetime mortgages have compound interest roll-up

➤ If you decide to pay off your mortgage early, there may be early repayment charges (ERCs)

➤ A lifetime mortgage will affect the inheritance you leave behind

➤ Advice is required on how it may affect your state benefit and care provision

What can I use Lifetime Mortgages for?

If you choose a lifetime mortgage, you can use the tax-free cash you release for a wide range of things, such as:

✅ Repaying your existing mortgage

✅ Increasing your day-to day income

✅ A once in a lifetime holiday

✅ Helping family get on the property ladder

✅ Upgrading your home – for example, installing a new kitchen, or energy efficient heating or windows

✅ Maybe you are on an NHS waiting list for an operation and need an operation sooner so you opt to pay privately using the monies from your equity release plan

How much could I borrow?

The amount you can release depends on your property’s value, your age and the sum you want to borrow. Your adviser will be able to tell you what the maximum amount you can borrow is.

What costs are involved?

Your equity release adviser will also be able to give you full details of what you may have to pay for, but costs can include:

✅ Valuation fee – The cost of valuing your property is payable when you submit your application

✅ Arrangement fee – This can be paid up front when you apply or paid on completion and added to your loan. If you add it to your loan, you will need to pay interest on this amount.

✅ Solicitor fees – You will need to agree on these fees with the solicitor you choose. The lender’s legal fees may be included in the arrangement fee

✅ Advice fee – your equity release may charge you a fee. You should agree this with them at the outset.

✅ Early repayment charge – A lifetime mortgage is designed to last for the rest of your life but can be repaid at anytime. Most lifetime mortgages are available with up to 10% ERC – free repayment facilities, and some products with up to 40%. You may incur an early repayment charge if you repay your loan early.

How does the process work?

Taking out a lifetime mortgage should be a straightforward process. We work with the lender to make this as smooth as possible for you.

The steps involved can include:

✅ Researching your options and find out if you’re eligible

Talk to an us to find out if you meet the criteria. We will also talk through your options and explain what’s involved

✅ Talking to your loved ones

A lifetime mortgage may or may not be right for you. It’s important to discuss it with anyone it may impact in the future, like your family. We are happy for them to join you when you meet with us, if you wish.

✅ Getting your tailored recommendations

We will take your details and provide a recommendation tailored to your situation. It may seem like we are asking many questions but this to makesure that we have all the facts, making the application process smoother.

✅ Completing your application

If you’re happy to proceed, we will complete your application with you. You will also need to appoint a solicitor.

✅ Getting your home valued

The lender you have chosen will arrange for your property to be valued

✅ Receiving your offer

Once your home has been valued and your application processed, an offer will be sent to you, your solicitor and to your adviser at LSG Financial.

✅ Checking the details

Go over the offer and makesure that you are happy with everything. We are on hand to answer any questions that you may have.

✅ Receiving your money

Your solicitor will finalise the legal documents, and the money you release will be paid to you via your solicitor.

Considerations Before Opting for Equity Release

Considering equity release can feel like a big step, and it’s often a decision made after exploring other options. That’s why LSG Financial is here – to guide you with care, clarity and your best interests at heart.

With extensive experience in financial advice, we understand that everyone’s situation is unique. Together, we will explore whether equity release is the right choice for you, ensuring it aligns with your goals and provides the peace of mind you deserve.

From explaining how equity release works to walking you through every step of the process , we will make sure you feel informed and confident about your decision.

Our aim is to offer clear advice without pressure, so you can make the choice that’s right for you and your family. If equity release is the solution, we will help you find the best option tailored to your needs.

Final thoughts

Equity release can be a valuable financial tool for you when looking to unlock the value of your property in retirement. However, it’s crucial to carefully weigh the advantages and disadvantages, seek professional advice, and consider alternative options before making a decision.

With proper planning and understanding, equity release can provide financial flexibility and security in retirement.

Are you ready to find out more about equity release?