This page is general information, not financial advice. Safe Haven Equity is an introducer service. Equity release is a major decision, and you should take advice from a qualified, FCA-regulated adviser before going ahead.
There is no yes-or-no answer to whether equity release is a good idea. For some homeowners it is the right way to free up money and stay in a home they love. For others, downsizing or another option would leave them better off. This guide sets out the main advantages and disadvantages of a lifetime mortgage, the safeguards that protect you, and the questions to think about before you speak to an adviser.
New to equity release? Start with our guide, What Is Equity Release?
The Pros and Cons at a Glance
| Advantages | Disadvantages |
|---|
| Tax-free cash from your home without having to move | Interest rolls up, so the amount owed can grow quickly |
| No monthly repayments required on most plans | Less inheritance left for your family |
| You keep ownership of your home | Can affect means-tested benefits |
| No negative equity guarantee on standard plans | Early repayment charges may apply |
| Option to make penalty-free partial payments, within limits | Set-up costs: advice, valuation and legal fees |
| Rates fixed, or capped, for life | Rates are usually higher than a normal mortgage |
The Advantages of Equity Release
- You can stay in your home. Plans that meet Equity Release Council standards give you the right to live in your home for life, or until you move into long-term care, as long as it remains your main home and you keep to the terms of your plan.
- The money is tax-free. It is a loan, not income, so you can use it for home improvements, clearing an existing mortgage, helping family or simply making retirement more comfortable.
- No monthly repayments are required. With most lifetime mortgages the loan and interest are repaid when the home is sold after you die or move into long-term care. If you want to, you can usually choose to pay some interest.
- You keep ownership. Your home stays yours, so you still benefit from any rise in its value.
- You cannot owe more than your home is worth. Plans that meet the Council's standards include a no negative equity guarantee. When the home is sold, even if the money left after agents' and solicitors' fees is not enough to clear the loan, neither you nor your estate will have to pay the difference.
- You can move home. You have the right to move to another property, as long as the lender accepts the new home as security for the loan.
- You can pay some of it back. New plans that meet the standards let you make penalty-free partial payments, subject to lending criteria, which can cut the interest that builds up.
The Disadvantages of Equity Release
- The amount you owe grows. Interest is usually added to the loan and then charged on itself, so the debt can grow quickly over time. Our guide to equity release interest rates shows how this works with a worked example.
- Less to leave behind. Because the loan is repaid from the sale of your home, there will be less inheritance for your family. Some plans let you protect a share of your home's value, but this reduces how much you can borrow.
- Your benefits may change. Money you release could affect means-tested benefits such as Pension Credit or Council Tax Reduction. Benefits that are not means-tested, such as the State Pension, Attendance Allowance and PIP, are not usually affected.
- It can be costly to leave early. Lifetime mortgages are designed to last for life, so paying one off early, or moving to a home the lender will not accept, can trigger early repayment charges. Check how long they last and how they are worked out.
- There are set-up costs. These can include advice, arrangement, valuation and legal fees.
- It may limit future options. Borrowing against your home now can leave less equity for later needs, such as paying for care.
Who Might Equity Release Suit?
Equity release is generally for homeowners aged 55 or over. It tends to be worth considering if:
- You want, or need, to stay in your current home rather than move.
- You need money for something specific, such as clearing an interest-only mortgage at the end of its term, repairs or adaptations, or helping family.
- You do not have other savings or assets that would do the job more cheaply.
- You have talked it through with the people who would inherit, and you are comfortable with the effect on what you leave behind.
Alternatives to Look at First
A good adviser will look at these with you before recommending equity release:
- Downsizing. Selling and moving somewhere smaller can free up money with no interest to pay, although moving has its own costs.
- A retirement interest-only mortgage. You pay the interest each month, so the debt does not grow, but you must be able to afford the payments.
- A standard mortgage or remortgage. Some lenders will lend into later life if you can show you can afford it.
- Savings, pensions or family help. Using other money first may cost less over time.
- Benefits and grants. Check you are claiming everything you are entitled to, and whether local council help is available for repairs or adaptations.
Questions to Ask Yourself
- What do I need the money for, and how much do I really need?
- Could I take it in smaller amounts through drawdown instead of one lump sum?
- How would it affect what I leave to my family, and have I talked to them?
- Am I claiming any means-tested benefits that could be affected?
- Do I expect to move, or to pay the loan off, in the next few years?
How to Stay Safe
- Only take advice from a qualified adviser regulated by the Financial Conduct Authority.
- Look for a plan that meets all of the Equity Release Council's product standards.
- Use your own solicitor, who will explain the legal side before you sign.
- Never feel rushed. A good adviser will be happy for family to sit in on the conversation.
Frequently Asked Questions
Is equity release a good idea?
It can be for some people and not for others. It tends to suit homeowners aged 55 or over who want to stay in their home, need extra money, and have looked at the alternatives first. It is a long-term commitment, so take advice from a qualified, FCA-regulated adviser.
Will I lose my home with equity release?
You keep ownership of your home. Plans that meet Equity Release Council standards give you the right to live there for life, or until you move into long-term care, as long as it stays your main home and you keep to the terms of your plan.
Can I owe more than my home is worth?
Not on plans that meet Equity Release Council standards. They include a no negative equity guarantee, so neither you nor your estate will have to pay back more than the sale value of the home, after agents' and solicitors' fees.
Does equity release affect benefits?
It can. Money you release may affect means-tested benefits such as Pension Credit or Council Tax Reduction. Benefits that are not means-tested, such as the State Pension and Attendance Allowance, are not usually affected.
Can I pay back equity release early?
Yes, but early repayment charges may apply. Plans that meet Equity Release Council standards also let you make penalty-free partial payments, subject to lending criteria and limits.
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