Customers looking to release equity from their home can usually borrow around 35% to 60% of the property value – and last year, the average customer released around £80,000 in the UK through equity release products.
Lifetime mortgage – This is the most common type of equity release and is a mortgage that is intended to last a ‘lifetime’ until you die or go into long term care. With this product you can borrow between 35% to 60% of your property value.
With this you can continue to live in your home and maintain 100% homeownership. So if the property continues to go up in value over time, you will benefit and this will maximise the amount that you pass down to your children through inheritance.
Home reversion - Whilst less popular, home reversion plans allow you to borrow up to 90% of the property value. With this product, you are physically selling off a percentage of your home at its current market value (or slightly lower).
You are able to receive a huge lump sum upfront, but you will not benefit when the property goes up in value over time, since you have just sold off part of it.
If you have cleared all your mortgage payments and own the property outright, this will maximise the amount you can borrow. This is because you own the property in full and if you still had payments outstanding, it would mean that your bank or mortgage lender still owns a percentage of it. So if you only owned 80% of your house or flat, you would therefore only borrow within these parameters.
The higher the value of your home or flat, the more you will be able to release from it. Since the amount you can borrow is based on a percentage of the property’s value, more valuable homes (usually up to £1 million) will allow you to take out more. Some equity release providers will also take a long term view and if your property is in a good location or up and coming area, you may be able to borrow a little more.
The older you are, the more you may be able to release. If you are 55 years old, which is the minimum age for applying for equity release, the lender considers that it may take another 30, 40 or 50 years before you die or go into long term care and they will finally recover their investment. However, if you are closer to 80 or 90, the lender may be willing to let you borrow more from your home, appreciating that there is a shorter waiting time to recover their funds.
To apply for equity release, you must be over the age of 55 and have paid your entire mortgage outright (or be able to manage additional monthly payments).
Your property will be subject to a valuation and will need to be in a certain condition, i.e not sinking or at risk.
You will need a solicitor who will be able to finalise your agreement and most equity release deals are completed within around 4 to 6 weeks.