The Pros and Cons Of Equity Release Products In 2024

pros and cons of equity release

As you approach later life, it can be difficult to decide how best to manage your finances. Equity release is one option for many homeowners in the UK that could provide an additional source of income, but before making any decisions, it’s essential to understand both the pros and cons of equity release.

With our comprehensive guide on this topic, we aim to help you weigh up all options so you can make an informed decision about whether or not equity release is right for you.

We’ll examine what equity release entails, who might benefit from taking out such a loan, and how much money can be borrowed. We’ll also explore potential pitfalls, such as what happens when you die.

Ultimately, we’ll advise you on finding the best deal available so that if you decide upon an equity release that is suitable for your circumstances, then everything will run smoothly with no hidden surprises.

1st UK Example Equity Release Plan For 2024

  • Equity release at 4.15%.
  • Free valuation for borrowers over 60
  • No monthly payments unless you prefer interest-only
  • Continue to live in your home and retain 100% ownership
  • You can still move home as this plan is transferable
  • Can be utilised to optimise tax planning purposes
  • Up to 70% loan to value

​​Please Enter Your Details Below For A Free No-Obligation Quote

Is equity release a good idea?

If you’re aged 55 or over, now is the perfect time to bring security and stability to your future and that of your loved ones.

With abundant equity release plans available, it’s easy to find competitive rates, high loan-to-value ratios and long-term safeguards tailored to your needs.

Don’t worry about inheritance – with equity release you can ringfence some of the value in your property for later on in life, so no matter how large the loan becomes, a portion will always be passed onto your estate and loved ones. So complete the short form above for a free quote – it’s secure, quick and no commitment is required.

 equity release provider awards

Do any of the following apply to you?

  • ​Do you have a mortgage you need to pay off?
  • Do you require money for repairs or home improvements? Like a new kitchen or bathroom.
  • ​Would you like to help ​a family member purchase their first home?
  • Would you like to pay off all your credit cards and loans and have zero monthly payments?
  • Would you like a better lifestyle, change your car or have a well-deserved holiday?
  • Release Equity From Your House As A Cash Sum Or Regular Payments

What is Equity Release?

Equity release is a way for homeowners in the UK to access some of the value stored in their property.

It involves taking out a loan secured against your home, which you can use to supplement your income or pay off existing debts. The amount you can borrow depends on several factors, such as age and the value of your property.

The two main types of equity release are lifetime mortgages and home reversion plans. With a lifetime mortgage, you take out a loan from an authorised lender that is secured against your property.

You don’t have to make any repayments during the term of the loan; instead, interest accumulates over time and is added to the balance at regular intervals. When you die or move into long-term care, the outstanding balance plus any accrued interest will be repaid by selling your home or using other assets if necessary.

Home reversion plans involve selling part or all of your property in exchange for either a lump sum payment or regular income payments until death (or sometimes longer). In this case, it’s important to note that when you sell part of your home, it won’t revert back to you upon death – instead, it passes directly onto whoever purchased it from you originally (i.e., usually an equity release provider).

It’s also worth noting that equity release products may have fees associated with them, such as arrangement fees and early repayment charges, so make sure to check these before signing up for anything. Additionally, while many providers offer fixed rates on their loans, they may not always be competitive, so shopping around before deciding which product is right for you is essential.

Equity release can be a great option for those looking to access the value of their home, but it is essential to understand all aspects before making any decisions. With that in mind, let’s take a look at some of the pros and cons associated with equity release.

Equity release: can provide a valuable financial solution for homeowners, but it’s important to be aware of the fees and potential risks involved before signing up.

​Equity Release For and Against

As with all financial decision-making, there are ups and downs to all products. Part of the service 1st UK offers is impartial equity release assistance from qualified and knowledgeable experts, providing essential information consumers need to make sound financial decisions.

When you know the pros and cons of equity release, you’ll be better equipped to see if you’ll benefit from this type of borrowing or if there are more downsides than you’re comfortable with, leading you to decide on an alternative to lifetime mortgages.

Read through our explanations of the pros and cons of equity release to find out if this can help you to free up money from your property and if so, what disadvantages you’d need to consider.

truths about equity release

How You Could Benefit from Equity Release (Pros)

Tax-Free Cash Payments

Equity release schemes can help you raise finance for any purpose. You can spend the cash as you like: kitchen remodelling, paying for your kid’s first deposit on a new flat, buying a new car, or taking a luxury holiday for your Golden Anniversary.

The equity you have tied up in your property can be used to add income to your retirement fund or supplement your salary by releasing money from your home at any time.

Drawdown options allow you to take an amount under a lender’s minimum (usually £10,000, subject to minimum loan requirements). You can take what you need when you need it and leave the surplus amount on reserve to withdraw at a later date.

This can allow you to receive an initial loan of £10,000, release incremental loans under your maximum loan amount, and pay only interest on the money released, thus avoiding the interest on reserve funds.

All withdrawals are paid as loans, avoiding the need to pay additional taxes.

Zero monthly repayments

Another name for an equity release scheme is lifetime mortgages. As the name suggests, it’s for life. However, there is a degree of flexibility with equity release. You can roll up the interest you would be paying on any type of home loan and only repay the loan plus interest upon selling your property.

The interest roll-up option would mean you’d be required to pay nothing back and completely enjoy all the benefits of a tax-free cash payout with nothing to pay back during your or your partner’s lifetime. The loan can be repaid upon the death of the homeowner (or both on joint lifetime mortgages) or when both you and your partner are in long-term care and in a position to sell your home.

Borrow with a tenure guarantee

Equity release schemes are a type of secured borrowing for homeowners. They do not risk the lender selling your property if you miss your monthly repayments because there are none.

With other types of secured finance, you must keep up the repayment schedule. With most equity release products, you can choose to repay capital plus interest only when you or your partner are both in care homes for the long term, or deceased.

In basic terms, equity release lets you take some of the nest assets left in your Living Will and take a percentage for yourself/yourselves to enjoy a better quality of lifestyle in your retirement.

The guarantee with equity release schemes is the lender can’t force the sale of your home to recuperate monies owed. The lender has to wait until the homeowners die or go into long-term care homes before the property can be sold and the loan repaid from the proceeds.

“No negative equity” guarantee

Only when your home is sold will the loan be repaid. All lenders approved by the Equity Release Council offer this protection as a standard. You need this because it prevents beneficiaries of your Will (your family) from being left owing more money than your home is worth.

High level of consumer protection

The Equity Release Council (ERC) sets the standards for conduct, ethics, and codes of practice. The Financial Conduct Authority (FCA) is the professional body responsible for regulating the market.

A combination of the ERC setting the standards and the FCA regulating the financial products industry as a whole gives you, the consumer, a wide degree of financial protection, both for your protection and looking after the financial interests of your family or beneficiaries.

The Downside (Cons) Of Equity Release

Reduced estate value

Your property will be worth a considerable amount to your estate. It may be the only financial asset you have to leave your family.

Equity release schemes release money from your property wealth, which means that when your home is sold, the loan is repaid from the proceeds. This reduces the overall value of your estate, which will affect the inheritance value for whoever you intend to leave your estate to in your Will.

Current eligibility for State benefits could be affected

The UK provides a range of means-tested benefits such as pension credits. Any means-tested state benefits you’re currently entitled to could change if you release equity from your home to increase your savings.

While there’s no limit on the amount of savings you’re entitled to, the amount of money you receive from pension credits will change if your savings increase above £10,000.

Early repayment charges (ERCs) can be steep

Equity release is mostly beneficial for long-term borrowing. Most have high early repayment charges (exit fees) applicable to repay the entirety of the loan.

The only exception is if you choose to use a lender with a downsizing guarantee. Some equity release companies will allow you to sell your home, move to a smaller apartment or other dwelling and repay your loan free of ERC’s, subject to the terms of your agreement.

As the early repayment charges can amount to a substantial sum, you must consider the likelihood of paying early in the future as it will affect your total cost of borrowing.

Costly setup fees

The cost of setting up a Lifetime Mortgage can be high, depending on a few variables. Some of the fees you’re likely to encounter include:

  • Fees for a home valuation report
  • Legal fees
  • Admin/application fees
  • Advisory costs as most lenders do not offer equity release schemes without professional advice

Due to the high cost of equity release schemes, it is advantageous to compare the whole market, taking into consideration the costs overall rather than just the interest rates.

Problematic future refinancing of your property

As equity release schemes are designed for long-term borrowing, considering how much you want to apply for from the outset is worthwhile. Refinancing will be more complicated once you have a loan in place, as it’s secured against your property.

Without planning for potential future financing needs, you could find yourself having difficulty refinancing your home because you don’t own 100% equity.

The Types Of Equity Release Schemes

Cash-free lump sum with interest roll-up lets you repay from the sale of your property. Most companies will allow you to make voluntary payments towards the whole or part of the interest each month. Lifetime Mortgages can be rolled up, Fixed Repayment, or Interest Only.

Drawdown Lifetime Mortgages – You agree on a total loan amount and only withdraw incrementally until you reach your maximum. The benefit here is you keep interest repayments down as you’re just paying interest on what’s borrowed and not on reserve to release in future years.

Most equity release firms will have a minimum withdrawal amount and a fixed-term period for you to withdraw, such as 15 years. The interest rates can also be variable based on when you release the funds instead of locked in from the outset. Home Reversion Plans – when you sell a proportion of your home equity (often below market value).

Most Popular Types of Equity Release

According to the Autumn Statement from the Equity Release Council, the most popular equity release schemes are drawdown and lump sum. 65% of new lifetime mortgage customers choose drawdown, 35% opt for the lump sum payout, and only a tiny minority, representing less than 1% of all new customers, are content with home reversion plans.

Who Can Benefit from Equity Release?

The main benefit of equity release is that it allows you to unlock the value of your property without having to sell up and move out. This means you can stay in your home while still accessing funds from its value.

Anyone over 55 who owns their own property may be eligible for an equity release plan, although some providers have higher age requirements than others. You don’t need to have paid off your mortgage either – many lenders will accept applications with outstanding mortgages on them, too.

How much money you can borrow through an equity release scheme depends on several factors, including the type of plan chosen and the amount of available equity in your property. Generally speaking, though, most people can borrow between 10% and 60% of their total property value, depending on these criteria and any other restrictions the lender sets.

When it comes to repaying what has been borrowed via an equity release scheme there are two options; either when you die or if you decide to move into long-term care (although not all plans offer this option).

In both cases, any remaining debt will be repaid using proceeds from selling the house after death or moving into care. So it’s important that family members understand how this works before signing up for any kind of loan agreement involving their parents’ homes.

Finally, when looking for an appropriate provider, it pays dividends to shop around and compare different offers carefully before deciding which one is right for you – as rates vary significantly between companies offering similar products.

Additionally, make sure that whatever deal you choose meets all regulatory standards laid down by The Financial Conduct Authority (FCA) and is tailored specifically towards meeting your individual needs – so take time researching potential providers thoroughly beforehand.

Equity release can be a great option for those looking for an additional source of income; however, it is important to consider the potential risks and rewards before taking out a loan. With that in mind, let’s explore how much you can borrow with equity release.

Equity release can be a beneficial financial product for those over 55, however, it is important to research potential providers thoroughly before signing up and make sure the plan meets all regulatory standards.

How Much Can You Borrow With Equity Release?

Equity release products allow homeowners to access the equity in their homes without selling up and moving. It can be an excellent way for older people to unlock some of the value tied up in their property, allowing them to fund retirement or other lifestyle goals. But how much can you borrow with an equity release product?

The amount you can borrow depends on several factors, including your age and the value of your property. Generally speaking, most lenders will offer between 10-50% of your home’s value as a loan. However, this could be higher if you have an especially valuable property.

In addition to these factors, there may also be limits imposed by individual lenders when it comes to how much they are willing to lend out through equity release products. This is why it’s important that you shop around for the best deal before committing yourself – different lenders may offer different borrowing levels depending on their own criteria and risk appetite.

It is important to note that while some providers may advertise a lack of upper limit when it comes to borrowing amounts through equity release products, this does not necessarily mean that there are no restrictions at all.

Generally speaking, most lenders will impose a cap on how much money can be taken out from your home’s value via an equity release product – this could range anywhere from 50-90%. Thus, it is essential to shop around for the best deal before committing yourself, as different lenders may offer varying levels of borrowing depending on their own criteria and risk appetite.

Finally, remember that even if you qualify for a large sum of money through an equity release product – such as 90% of your home’s value – this does not necessarily mean that taking out such a large loan is always wise or beneficial.

Whatever money is borrowed must eventually be paid back with interest, so it is important to consider all aspects carefully before deciding whether taking out an equity release product is right for you or not.

By understanding how much you can borrow with equity release, you can better plan for the future and make informed financial decisions. However, it is important to consider what happens when you die and the implications of such a decision before taking out an equity release product.

Equity release products can be a great way to access the equity in your home, but it is important to shop around for the best deal and consider all aspects carefully before deciding whether taking out such a loan is right for you.

What Happens When You Die?

When you die while still owing money on an equity release product, the amount owed will be deducted from your estate. Any assets you leave behind, such as property or savings, can be used to pay off the debt. If there are not enough assets in your estate to cover the amount owed, then creditors can claim your beneficiaries.

It is important to note that if you have taken out an equity release plan with a ‘no negative equity guarantee’, none of your beneficiaries would be liable for any outstanding debt upon death.

However, it is worth noting that some lenders may charge additional fees and interest rates when taking out these types of plans, so it’s important to read all terms and conditions carefully before signing up.

Another thing to consider when taking out an equity release plan is what happens if you move house during the term of the loan. In most cases, lenders will allow customers who take out their products with them to transfer their existing loan agreement onto another property without starting again from scratch.

However, it’s always best practice to check with each lender individually, as policies vary between providers.

Understanding what happens when you die is essential to making an informed decision about equity release. However, with the right research and guidance, finding the best deal on equity release can be a great way to unlock additional funds while protecting your assets.

Equity release plans can provide financial flexibility, but it is important to consider the potential risks of creditors making a claim against your beneficiaries if you die owing money.

Need Our Help to Compare Equity Release Schemes?

At the start of 2024, there are around 300 products from 88 equity release companies, each regulated by the FCA, requiring financial advice before you can apply. We’ll compare them all, review the costs, walk you through the fine print and explain the entire process in simple terms.

Our team will guide you through all borrowing options and explain if equity release is suited to your circumstances and if not, then what.

When we know it is, we’ll compare all 300 current products from the 88 specialist equity release companies using our bespoke equity release over 55 calculator and let you know the providers with the best terms and rates.

Equity release advice from an independent financial adviser

A qualified equity release adviser can use a free equity release calculator to tell you exactly what cash lump sum you can get. The best offerings involve fixed interest rates, so you know the interest costs, so borrowing money is far less risky.

Years ago, equity release interest rates were much higher than now and were only ideal for people with an existing mortgage to repay.

The worst situation is having a lifelong commitment of compound interest with house prices going down.

If you have retirement income, a specialist adviser’s personalised illustration may suggest an RIO mortgage instead of a home reversion scheme. In this case, a mortgage arrangement fee may be well worth paying.

If you think you may move house to a smaller property, an early repayment charge could be high and home reversion schemes can be even worse.

You should also seek professional advice on the impact of means-tested state benefits and your pension credit. The extra cash from the equity release provider or equity release company could mean you get fewer benefits.

Costs involved in an equity release product

  • Valuation fees to establish how much equity you have based on the full market value
  • Completion fee
  • Expert advice fees with a study of your individual circumstances
  • Legal advice fees
  • Equity release arrangement fees

Borrow money using an equity release specialist

An equity release plan from a company like Key Equity Release will likely turn out much better than a home reversion plan, as with reversion, you sell part of your home for a low cost much lower than the open market property value.

The lowest overall cost for unlocking cash in later life is available to people with a substantial regular income. These people can get a RIO mortgage where you don’t add interest costs to the loan. You make monthly payments towards the loan, so the interest rate is lower.

Before you look at RIO mortgages, you have to be aware that your monthly outgoings will be assessed by an advisory team who can make an informed decision.

A specialist will likely tell you the minimum age for all homeowners is age 55. Only smaller amounts can be borrowed against your current home when you are under the age of 65. If your property’s value doesn’t go up over time, the compound interest could overtake your remaining full value.

What happens if I have to move into long-term care?

If you need to enter long-term care or need semi-permanent care, the equity release scheme ends, and your home is sold. The principal and any interest accrued on the loan are deducted from the sale price, and the remaining money is yours.

Is equity release safe?

The financial conduct authority regulates equity release. It is strictly regulated. Is it a good or bad idea? Well, that depends on your ability to get a low-interest rate and the type of equity release you sign up for. It’s a big decision.

It’s fair to say it is not dangerous, but the potential drawback is that if the value of your home goes down, you could end up with very little money left over.

How to Find the Best Deal on Equity Release

Research is key to finding the best deal on an equity release product. Start by researching different providers and comparing their quotes.

Make sure you understand all of the terms and conditions associated with each quote before making a decision. Consider factors such as interest rates, repayment options, fees and charges, early repayment penalties, and any other special features that may be included in the package.

It’s also important to consider how much money you can borrow with equity release products. Generally speaking, lenders will allow you to borrow up to 55% of your home’s value or more, depending on your age and circumstances. However, this figure could vary from lender to lender, so check what they offer before committing yourself financially.

You should also consider what happens when you die if you take out an equity-release product. Most lenders will require that any outstanding debt is repaid upon death. Still, some may offer additional flexibility, such as allowing family members or friends to take over payments instead of repaying the loan in full immediately after a death.

It’s important that you are aware of these details before signing up for an equity release plan, so make sure they are clearly outlined in any agreement between yourself and the provider before taking out a loan or releasing funds from your property through an equity release scheme.

Finally, it pays off to shop around for deals on equity releases since different providers have different offers available at any given time—meaning significant savings could be waiting for those who look hard enough.

Try using comparison websites such as 1st UK where possible. This can help narrow down potential options quickly without trawling hundreds of pages online, looking for suitable deals.

New issues in 2024

Deciding to take out an equity release is a big one, and it’s essential to consider all the pros and cons before you make your choice. With careful research and professional advice, you can be sure you’re making an informed decision about what’s best for your financial future.

By understanding the risks involved in equity release and its potential benefits, you can decide if this is the right option for you. Remember: when weighing up the pros and cons of equity release, always seek independent advice from a qualified expert.

FAQs In Relation To Pros And Cons Of Equity Release

What are the downsides of equity release?

Equity release can be a great way to access the wealth tied up in your home, but it is important to consider the downsides before making any decisions.

Equity release products come with higher interest rates than other forms of borrowing, and you may have to pay early repayment charges if you decide to repay your loan earlier than planned.

Equity release also has risks associated with it, such as reducing the value of your estate or impacting inheritance tax planning. You must seek independent financial advice before taking out an equity release product so that you understand all the potential implications.

Is it a good idea to take equity out of your house?

Taking equity out of your house can be a great way to access funds for various purposes, such as home improvements or debt consolidation. However, it is essential to consider the risks associated with this type of financial product before making any decisions.

Equity release schemes are long-term commitments and should only be considered if you have a clear plan to use the money and repay the loan.

Additionally, tax implications may need to be considered when taking out an equity release scheme.

Ultimately, whether or not taking equity out of your house is a good idea depends on individual circumstances; seeking professional advice from 1st UK Money can help ensure you make an informed decision.

What does Martin Lewis think of equity release?

Martin Lewis, the founder of and a renowned financial expert, advocates for equity release to unlock value from your home. He believes it can be beneficial when used responsibly and cautiously in certain circumstances.

He has said that if you consider taking out an equity release product, you should always seek independent advice first, shop around for the best deal available, and ensure you understand all its terms and conditions before signing up.

Ultimately, he believes that equity release can be a great way to access the money you need while remaining in your home.

How much interest do you pay on equity release?

At 1st UK Money, we offer competitive interest rates on equity release products. Our rates are tailored to our customers’ individual needs and can range from as low as 3% APR up to 6.7%.

We also provide flexible repayment options so that you can choose the best option for your circumstances. With our experienced team of advisors always available to help, you can be sure you’re getting the best deal.