If you're over 55 and own your home, you've probably heard about equity release. Perhaps a friend mentioned it, or you've seen adverts during daytime television. But what exactly is it, and could it be right for you? As a mortgage adviser specialising in later-life lending, we've helped hundreds of homeowners navigate this decision, and we’d like to provide some more information on what it is and what to think about when considering using equity release.
What is equity release?
Equity release allows you to access the wealth tied up in your home without having to sell or move out. It gives you the ability to ‘unlock’ cash from your biggest asset and for many people over 55, it provides a valuable financial lifeline or the freedom to enjoy retirement on their terms.
One of the more common terms you’ll hear with equity release is a ‘lifetime mortgage’. This is a type of equity release plan that lets you borrow against your home without having to repay it until you die or move into care.
Why do people choose equity release?
People consider equity release for all sorts of reasons, and there's no ‘typical’ client. Some common circumstances include:
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Boosting retirement income: perhaps your pension doesn't stretch as far as you'd hoped, or you want to enjoy life more fully without financial stress.
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Home improvements: from a new kitchen to essential repairs like a roof replacement, your home might need investment to remain comfortable and safe.
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Helping family: many grandparents want to help children or grandchildren with house deposits, university costs, or simply giving them a financial boost when it's most needed.
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Clearing debts: whether it's an outstanding mortgage, credit cards, or loans, consolidating debt through equity release can simplify your finances and reduce monthly outgoings.
The key is being clear about your goals. This helps you and your adviser determine whether equity release is the best solution or if alternatives might work better for your circumstances.
Understanding the costs and how interest works
Understanding the costs involved is crucial to making an informed decision. Of course, equity release isn't free and the main consideration is the interest that accrues on the loan.
Interest rates on lifetime mortgages can be fixed or variable. However, the interest compounds, meaning you pay interest on the interest. For example, if the bank lent you £1 with 10% interest each year, after the first year the total is £1.10. The next year, the interest accrues on £1.10 (not the original £1) so over time, this can significantly increase what you owe. It’s important to understand this concept and we’d be happy to have a conversation with you to help explain – it’s one of the most common areas that clients need help understanding.
The good news? Many modern plans allow voluntary repayments, helping you manage the growth of the loan without penalty. You'll also face setup costs including valuation fees, legal fees, and advice charges, though these can sometimes be added to the loan itself.
Is equity release right for
you? Exploring alternatives
Equity release works brilliantly for some people, but it's not the only option. Before committing, it's worth exploring alternatives:
- Downsizing: moving to a smaller, less expensive property releases cash and might reduce your ongoing costs.
- Retirement interest-only mortgages: these are mortgages designed for older borrowers where you pay the interest each month, so the loan balance stays the same. Unlike traditional repayment mortgages, there is no fixed term; instead, the loan is usually repaid when the borrower dies, moves into long-term care, or sells the property. They can be suitable if you have sufficient retirement income to cover the monthly interest and want to avoid reducing your estate as quickly as with equity release
- Conventional mortgages: even at 70 or beyond, some specialist lenders offer mortgages with five-year terms. These work well if you're still working or have pension income, giving you flexibility to plan your next steps.
- Government benefits: you might be entitled to support that boosts your income without borrowing.
- Family loans or gifts: some families prefer private arrangements, though it's important to formalise these properly.
Every option has pros and cons. The middle ground between equity release and conventional mortgages is where we tend to spend a lot of time with clients, finding solutions that fit their unique circumstances.
What about your inheritance and family?
Above all, one of the main concerns about equity release, and quite understandably, is ‘What will I leave for my children?’
Equity release reduces your estate's value because the loan and accumulated interest are repaid from the sale of your home. However, modern plans offer inheritance protection options. You can ring-fence a percentage of your property's value, guaranteeing something passes to your loved ones regardless of how much the loan grows.
Our strongest advice? Talk to your family openly. In our experience, adult children often care more about their parents' happiness and financial security now than maximising inheritance later.
Common questions and concerns
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Will I be left with debt I can't manage? With a lifetime mortgage, you never make mandatory monthly repayments (though you can if you wish). The debt is settled when your property is sold, so it doesn't affect your day-to-day cash flow.
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What if I want to move house? Modern plans are portable. If you move to another suitable property, your equity release transfers with you. If you downsize significantly, you might need to repay some of the loan, but there are no early repayment penalties for this.
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How much can I borrow? This depends on your age, property value, and health. Typically, you can access 20-60% of your home's value. The older you are, the more you can borrow. Properties must usually be worth at least £70,000.
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What about care costs? Equity release can be used to fund care costs if needed, providing financial flexibility during difficult times.
Final thoughts: is equity release your next step?
Equity release has transformed retirement for many of my clients, providing financial freedom, peace of mind, and the ability to truly enjoy their later years. It's not right for everyone, but for homeowners over 55 who want to access their property wealth without moving, it's certainly worth exploring.
The key is getting expert, advice from a qualified professional, tailored to your unique situation. Whether equity release, a retirement interest-only mortgage, or another solution proves best, what matters is finding the right fit for your life and goals.
If you're curious about whether equity release could work for you, or you'd simply like to explore your options with no obligation, we'd love to chat. Get in touch through our website or give our office a call.
Your golden years should be exactly that—golden. Let's make sure your finances support the life you want to live.
Next steps
Important information
You should always think carefully before securing a loan against your property.
A lifetime mortgage will reduce the value of your estate and may affect your entitlement to means-tested benefits.
Clearing an existing mortgage with a lifetime mortgage may result in higher cost of borrowing.
Constantia Mortgages charges a fee for later life mortgage advice. The fee is up to £995.