What is Equity Release?
Equity release products are financial products which enable a customer to unlock a proportion of the value – or equity – tied up in their property, in exchange for a tax free lump sum. There are two principal types of equity release products available: lifetime mortgages and home reversion plans.
Lifetime mortgages enable customers to take out a loan, secured against the value of their property. These are by far the most popular type of equity release plan, and are typically available only to customers aged 55 and over. The customer retains ownership of the property and can still benefit from any increases in its value. Repayments are typically not made until after the customer is deceased, or has gone into long term care. The interest accumulated on the loan means that the value of the estate can be significantly reduced, though there will never be a debt left with the estate.
Home reversion plans differ in that the customer sells part of their home in exchange for a lump sum. When the customer dies or moves into long term care the property is sold and the reversion company receives their designated share of the proceeds, including any growth in the value, based on the proportion that was sold to them. The customer or their estate receives the rest, minus any fees which may be charged.
Equity release is used for a wide variety of purposes, including topping up monthly retirement income, paying off debts, home repairs and maintenance, holidays and leisure or supporting family members family. At present it remains relatively uncommon as a means of funding long term care, yet many policymakers and commentators believe it will become increasingly important in this regard.