If you own your own home and are 55 or over, equity release could provide you with a lump sum, additional income or maybe both. In this article, you’ll find out how the different types of equity release scheme work and what you should expect from firms that sell them.
What is equity release?
Equity release describes a range of products only available to you if you are older, typically over the age of 55. They allow you to release the equity (cash) tied up in your home without moving.
The products have no fixed term and allow you to stay in your home for the rest of your life, unless you have to move into long-term care, or if you break the terms of your equity release contract, for example if you let your home fall into disrepair.
Equity release schemes can be helpful in certain circumstances, but are not suitable for everyone. For example, they can be expensive and inflexible if your circumstances change and may affect your entitlement to state or local authority benefits.
Equity release schemes are not the same as sale-and-rent-back schemes, which are very risky and should only be considered as a last resort.
Equity release - How does it work?
You can either borrow money, which is secured against your home (called a lifetime mortgage), or sell part or all of your home (called a home reversion scheme). This can give you a lump sum, a regular income, or both.
You’re more likely to qualify for an equity release scheme if you have no current mortgage, or if any mortgage you have is relatively small.
There may be a minimum amount you have to take. This depends on the scheme and the provider and could be, say, £15,000 or £25,000. But you may not have to take it all at once.
Types of equity release
They work differently and are quite complicated, so it’s important to get professional financial advice.
Equity release schemes - How are they regulated?
Firms advising or selling equity release schemes have to be regulated by the Financial Conduct Authority (FCA), the UK's financial services regulator, or be the agent of a regulated firm.
Regulated firms and their agents are placed on the FCA Register and have to meet certain standards.
Before taking out an equity release product, make sure you get professional advice. You should check that the adviser you use is on the FCA Register, and that they have an equity release qualification to give advice. This means they have to meet certain standards and there are procedures to follow if things go wrong, including using the Financial Ombudsman.
Equity release firms - What the FCA expects them to do
Firms selling equity release schemes must make sure that advertisements, product brochures and other promotions are clear, fair and not misleading. This means that:
- the advantages and disadvantages of particular features of the equity release schemes have to be equally stated
- with lifetime mortgages, the firm must give the annual percentage rate (APR) whenever it provides any price information
the adviser must check whether using the scheme will affect your tax bill and entitlement to benefits
- if there's a fee for advising on or arranging your lifetime mortgage, the actual or typical fee must be quoted
If you think an advertisement doesn't meet these standards above, let the Financial Conduct Authority know. You can call them on 0845 606 1234 or use their online form to report a misleading advertisement.
Firms will give you two documents marked with the KeyFacts logo that set out important information for you. The information is in a standard format so you can compare products and services from different firms quite easily.
The 'KeyFacts about our equity release services' document tells you:
- about the service the firm can offer
- whether it offers lifetime mortgages, home reversion plans, or both
- whether it offers advice or just information, and
- how much you’ll have to pay for the service
The 'KeyFacts about this lifetime mortgage or home reversion plan' document will be tailored for you and will tell you:
- how much you want to release
- the overall cost, including any upfront fees and charges
- what you'll pay each month, if there are monthly repayments, and
- what happens if you don’t want it any more
When you've read these documents, ask questions if anything is not clear to you.