Equity Release: How Much Capital You Can Release

Equity release can be a great way to access the wealth tied up in your home and get tax-free capital to put towards retirement or wedding costs, university fees or a first home for a family member. But it’s not without risk.

This article will explain the different types of equity release products, alternative forms of funding for later life and why it’s essential you seek advice if you’re considering releasing equity.

How much equity can you release from your home?

You can usually release between 60% and 80% of the value of your home, but the maximum amount will depend on several factors including what type of equity release scheme you use.

There are two main types of equity release products…

• Lifetime mortgages – These allow you to take a lump sum or release cash in increments. You retain ownership of your home, and the loan is repaid when you sell the house or pass away. This is the most common type of equity release and typically allows you to release up to 60% of the property’s value.
• Home reversion plans – Allow you to exchange a percentage of your home with a reversion provider in return for a cash lump sum or regular payments, although most experts don’t recommend them due to the risks involved. Irrespective of how much of the property you choose to sell, you retain the right to live in it until you die. Home reversion can allow you access to up to 80% of the property value.

NB: To protect their investment, providers take a larger percentage of your property than that which you receive. To access 80%, you will usually have to transfer 100% of your property to the provider. This is why most equity release advisors would recommend lifetime mortgages instead.

If you’d like to see how much equity you could release from your own property, simply input an estimated value and your age into our calculator here:

Factors that affect the amount you can release

Equity release providers are not generally concerned with your income and credit history as the loan will be repaid when you sell, pass away or move into long-term care. Instead, the maximum amount of equity they will let you release will depend on the following factors…

Age and health

The older you are, the shorter your life expectancy and therefore the more you are able to borrow. This is because interest is compounded so the longer a loan is in place, the lower the commercial benefit to the provider.

You must be 55 or over to apply for a lifetime mortgage and usually at least 60 if you want a home reversion.

Condition and value of the property

The amount you can borrow also depends on the market value of your property. Providers will instruct their own valuation as well as taking into consideration the condition of the property and potential increases in value.

Property type

Providers are often reluctant to lend to people who live in non-standard constructions. Environmental factors such as the risk of flooding or the desirability of the area can also impact a provider’s decision on how much they will lend.

Equity release example amounts

Below is an illustration of the relationship between your age and your property’s value, and what that might mean in terms of the amount of equity you can release. Please note this is just an example and actual figures will be determined by your unique circumstances.

How a broker can help you secure the amount you need

Equity release is relatively easy to apply for but is an extremely complex set of products. This is why professional advice is mostly obligatory. By discussing your financial future with an advisor, they can provide a clear explanation of your options, including alternative methods of borrowing to ensure you make a fully informed decision and are able to secure the amount of capital you need.

The brokers we work with are regulated by the FCA (Financial Conduct Authority) and members of the ERC (Equity Release Council). This means they are bound by strict rules and standards brought in to protect consumers.

They have access to every equity release provider on the market and can match you with one who is best placed to let you release the exact amount of capital you need.

How much should you release?

To answer this question, it’s important to first consider how equity release will form part of your long-term financial planning.

It can affect the amount of inheritance you will leave, so it is worth speaking to close family members before committing to it. That said, your home is probably your most valuable possession and equity release is often the best way to free up cash for later life.

For those without family, equity release is often the most effective way to access equity while they are young and healthy enough to make the most of it.

With both lifetime mortgages and home reversion, you can ring fence some of your equity for inheritance purposes.

Electing to ‘drawdown’ funds and take cash in increments reduces the overall costs of borrowing as interest is calculated from when you access the funds. You are strongly advised to consider how much equity you want to release in your lifetime and plan accordingly from the start. Most providers insist on holding the first charge so trying to access additional funds from a separate source can be very difficult.

If you expect to downsize or move home for any other reason in the future, make sure your equity release product allows you to do that. A broker can help ensure you fully understand the implications of equity release and avoid products that charge a hefty settlement fee if you move home.

Alternative sources of funds

The most obvious alternative to equity release is downsizing or moving to an area where property is more affordable. While this may make financial sense, leaving your family home and moving away from family and friends can have a significant social impact on your life.

It’s worth considering all your options before you make that leap.

For those nearing 55, now be the right time to speak to a broker about your plans. You may want to consider a remortgage or a retirement interest only mortgage instead of equity release – particularly if you need the money quickly.

Get matched with an equity release advisor

The equity release advisors we work with have access to the entire market and can help you secure the amount of borrowing you need. They will help you understand the complexities of equity release and make sure that, if you choose to go ahead, you are protected by the ‘no negative equity guarantee’ which safeguards your estate against negative equity when the property is sold.

Our broker matching service will pair you with an advisor who has a track record of helping people assess equity release options against alternatives while balancing present needs with future expectations.

Call today on 0808 189 0463 or enquire online to arrange a free no-obligation chat.