Equity Release: Pros, Cons & Alternatives to Consider

Before deciding whether equity release is the right option, it is important to understand both the advantages and the potential drawbacks.

In this guide, we take a closer look at the main benefits and disadvantages of equity release, and outline some of the alternative options you may wish to consider.

Is equity release a good idea?

Equity release can be a suitable option if you are aged 55 or over and want to access tax-free cash tied up in your property without the need to sell your home or make monthly repayments (unless you choose to).

The funds released can be used for a variety of purposes, such as:

• Home improvements

• Supplementing retirement income or lifestyle

• Helping a family member onto the property ladder

However, equity release is a long-term commitment that typically lasts until you either pass away or move into long-term care. The overall cost can be significant, as compound interest (interest charged on the interest) builds up over time, which may substantially reduce the amount of equity left in your property.

This means it is essential to weigh up the pros and cons carefully and to consider alternative options before making any final decision.

Advantages of equity release

Equity release schemes can provide several advantages for homeowners aged 55 or over:

Access to tax-free cash

If much of your wealth is tied up in property rather than savings, equity release can unlock money from your home. This cash can be taken as a lump sum for one-off purchases (such as a new car or a holiday) or drawn down gradually to supplement your retirement income.

Maintain ownership of your home

With a lifetime mortgage – the most common type of equity release – you remain the legal owner of your property. This means you do not have to downsize to access funds and can still benefit from any future increase in your home’s value, potentially allowing you to release more equity later on.

No requirement for monthly repayments

Equity release does not require regular monthly repayments, making it particularly attractive for retirees who may have less income than during their working years. (Some products do allow voluntary payments if you prefer to manage interest charges.)

Consumer protections

By law, you must receive professional advice before entering into an equity release plan. If your provider is a member of the Equity Release Council (ERC), you will also benefit from a no negative equity guarantee, meaning you can never owe more than the value of your home.

Alternatives to consider

If you are unsure whether equity release is the right option, there are several alternatives that may be more suitable depending on your circumstances:

Remortgaging to release equity

If you are still in employment and already have a mortgage, remortgaging to release further equity can be a strong option. It is particularly useful if you need a set amount for a specific purpose, such as home improvements or a deposit on another property. Remortgaging is often cheaper overall than equity release.

Downsizing

Moving to a smaller or less expensive property is a straightforward way of unlocking equity. This option avoids interest charges and the additional fees that come with equity release, although it does require a move.

Using savings and investments

If you have other assets available, such as cash savings or investments, it is usually more cost-effective to use these before considering equity release.

Retirement Interest-Only (RIO) mortgage

With an RIO mortgage, you are required to make monthly interest payments. This can be a good option if you have a reliable retirement income, as it preserves more of your estate – only the original loan amount will need to be repaid when you die or move into long-term care.

Frequently Asked Questions