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Should you release the equity in your home?

A look at whether equity release could be the right choice for you, and how it works.

Increasingly, those aged 55 and over are opting to release the equity in their homes in order to enjoy a higher standard of living.

Today, the older generation lives life to the full. No longer content with a quiet retirement spent gardening and knitting, those aged 55 and over are more likely to be found travelling the world, enjoying new experiences or indulging their hobbies. However, all this comes at a cost, and with so many of us living much longer than previous generations, there can come a time when finances become somewhat stretched. One way to remedy this and continue to live life to the fullest is to consider equity release from your home. Here’s a quick overview of what this entails.

Equity release in a nutshell

In essence, equity release is a financial product like a mortgage, personal loan or savings account. However, equity release products are available only to homeowners aged between 55 and 95. There are two basic types of equity release plan:

Type 1: The lifetime mortgage

The lifetime mortgage is a loan secured on the value of your home. With this plan you will receive a tax-free lump sum. There are no monthly repayments. Instead, interest on the loan gathers and, when you die, the loan plus the interest is paid using money made from the sale of your home.

Type 2: Home reversion plan

There are also equity release reversion plans. With these products, you sell all or part of your home for a tax-free lump sum or regular payments. You also receive a guaranteed lifetime lease of the property and there are no monthly payments to make. This means you’re allowed to live in your home rent-free despite the lender owning all or part of it, however you must insure and maintain the property. After your death, the lender sells the property in order to recoup the share it owns.

What else do I need to know?

There is an organisation called the Equity Release Council. This body has created a Code of Conduct to protect people who decided to release equity from their homes. You may prefer to select an ERC-approved lender if you do decide to consider an equity release.

Are there any downsides?

While many retired people are already choosing to release the equity from their homes, without proper preparation there can be some potentially negative consequences. For example, any equity release plan will ultimately reduce the overall value of your property, and accessing the property’s cash value could potentially impact the state benefits you’re entitled to.

If you’re in the correct age bracket and you’d like to spend the cash that’s tied up in your property, equity release could be a great idea. However, it’s vital that you get professional advice from an independent financial adviser before embarking on this journey.


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