Although an equity release plan is an excellent means of making the most of the money you have earned over a lifetime, it is not without risks, and may not be the best course of action for everyone.

couple discussing equity release

With any equity release scheme, whether it is a lifetime mortgage or a home reversion plan, there are many questions and important details to consider.  These are some of the most frequently asked questions concerning equity release schemes:

Will I be eligible for an equity release scheme?

Different plan providers have different criteria, but the following are standard minimal requirements for an equity release scheme:

  • You must be over 55 (for some providers, the minimum age is 65)
  • You must own your own home
  • You must be mortgage-free (or at least be very close to paying off your mortgage)
  • The property you are using to release equity must be your main residence, and it must be in the UK.
  • It’s also worth remembering that if you are making a joint application, you must both meet these criteria.

    How much will I be able to release?

    borrowing moneyThe amount of cash that you will be able to release depends on two key factors: your age and the value of your property. As a general rule, the older you are and the more value that your property has, the more you will be able to release.

    Another major factor is the extent to which you are concerned about leaving an inheritance. If you have no plans to leave a significant estate after you have passed away, then you have more freedom in terms of the amount you can release from your property now.

    Will the money I release from my house be taxed?

    No, the cash you release via an equity release plan is tax-free. However, if you then choose to put that money in a savings account, or invest it, or purchase an annuity, then tax may be payable on the interest or any gains that you make.

    Will my state benefits be affected?

    It is possible that your state benefits may be affected, especially those that are means-tested, as releasing a lump sum from your property may affect the amount of benefits that you are entitled to. Always seek independent advice with regards to your personal state benefit entitlement before making a final decision on whether to release equity from your home.

    Will I still be able to leave an inheritance?

    Nest EggYes, but it may be considerably reduced as a result of the equity release scheme. The way that equity release schemes work, and are carefully regulated by the Equity Release Council.

    This means that you cannot end up owing more than the value of your property: lifetime mortgages come with a ‘no negative equity guarantee’ (NNEG), and with a home reversion plans, you sell a percentage of your property – that percentage does not and can not change regardless of what happens to the value of your home.

    Finally …

    The best thing to do is to get independent financial advice, and to talk to a number of plan providers, before making a final decision. Even so, before you approach an advisor or any plan providers, it’s well worth already having an idea of what you want, and what you expect your estate to be able to achieve after you have passed away.