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How does release of equity work?

by | Mar 11, 2024 | Equity Release

How does release of equity work?

Equity release is a financial solution that allows homeowners to access the value tied up in their property. Understanding how equity release works is important for those seeking to unlock additional funds for retirement or other financial needs.

Understanding Equity Release

Equity release revolves around the concept of equity, which is the value of a property minus any outstanding mortgage or debts secured against it. There are two primary types of equity release schemes: lifetime mortgages and home reversion plans. Each scheme has specific eligibility criteria tailored to individuals’ financial circumstances.

How Does Release of Equity Work?

The process of releasing equity typically commences with an initial assessment conducted by a qualified advisor. This assessment entails evaluating your financial situation, objectives, and the valuation of your property. Property valuation takes into account various factors such as location, size, and condition.

Once the property’s value is determined, you collaborate with your advisor to select the most suitable equity release plan. This may involve opting for a lump sum payment, regular income streams, or a combination of both, depending on your preferences and needs.

Benefits of Equity Release

One of the primary advantages of equity release is the ability to bolster retirement income. Many retirees find themselves asset-rich but cash-poor, and equity release offers a means to access funds without relinquishing homeownership.

Moreover, releasing equity can facilitate home improvements or modifications, enhancing living standards and comfort. Whether it’s refurbishing the kitchen, upgrading to energy-efficient features, or making necessary accessibility adjustments, equity release can finance these endeavours.

Additionally, equity release can be utilised to settle outstanding debts, alleviating financial burdens and providing peace of mind in retirement.

Considerations Before Releasing Equity

Before embarking on an equity release journey, it’s imperative to consider its potential implications on inheritance and means-tested benefits eligibility. Equity release may diminish the inheritance you leave behind for beneficiaries and impact entitlement to benefits like pension credit or council tax support.

Furthermore, it’s crucial to grasp the long-term financial ramifications of equity release, including interest accrual on lifetime mortgages and the prospect of negative equity if property values depreciate.

Risks Associated with Equity Release

While equity release offers financial flexibility, it’s essential to acknowledge associated risks. These include the accumulation of interest on lifetime mortgages, which can erode equity over time and substantially diminish the property’s value.

Moreover, engaging in an equity release scheme may result in a reduced inheritance for beneficiaries. Additionally, there’s the possibility of negative equity if property prices decline, potentially leaving you owing more than the property’s worth.

FAQs about Equity Release

What is equity release?
Equity release is a financial mechanism that allows homeowners aged 55 and above to unlock the value tied up in their property without having to sell it.

How much equity can be released?
The amount of equity that can be released depends on various factors, including the property’s value, the homeowner’s age, and the chosen equity release scheme.

Can I stay in my home?
Yes, in most cases, you can continue residing in your home for as long as you wish after releasing equity. Equity release schemes are designed to allow homeowners to remain in their homes until they pass away or move into long-term care.

What happens if I move house?
If you decide to move house after releasing equity, you may be able to transfer your equity release plan to your new property, subject to eligibility criteria and lender approval.

Can I repay the equity release plan early?
Yes, it is possible to repay an equity release plan early, although early repayment charges may apply. It’s essential to consult with your equity release provider to understand the implications of early repayment fully.

Will equity release affect my benefits? Releasing equity could impact means-tested benefits eligibility, as it may increase your overall assets and income. It’s advisable to seek advice from a financial advisor to assess how equity release may affect your specific benefits entitlement.


In summary, grasping the mechanics of how equity release works is vital for homeowners contemplating this financial option. By weighing the benefits against the risks and seeking professional guidance, individuals can make informed decisions about releasing equity from their homes, ensuring financial security and peace of mind in retirement

We’re here to support you on your journey by providing expert advice, informative resources, tailored solutions, and exceptional customer support. Whether you are navigating financial decisions, seeking guidance on projects, or aiming to achieve your goals, our dedicated team is committed to empowering you with the knowledge and assistance you need to succeed. Count on us to provide personalised guidance, valuable insights, and a positive experience every step of the way. Contact us today.

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