Before looking at the different types of equity release, it’s really important to highlight the need for independent financial advice. Equity release has had a bad reputation in the past and can be complicated, both financially and legally. If it’s something you’re considering, you should definitely speak to an independent financial adviser with experience in this area before going any further.

The basics

There are usually some eligibility rules, which can vary depending on the provider. In most cases, you’ll need to be over 55, own your home, and the property will need to be worth at least a certain amount. It also usually has to be a traditional type of property — for example, park homes don’t normally qualify.

Providers will also look at things like whether the property is freehold or leasehold (freehold is usually preferred), whether you already have a mortgage, and how much you’re looking to release. An independent financial adviser can explain how all of this applies to your own situation.

Types of schemes

Even though they may be called different things, there are basically three main types of schemes:

• Lifetime mortgages
• Home reversion plans
• Sale and rent back schemes

Here’s a quick overview of each one….

Lifetime mortgages

Put simply, this is a mortgage that’s usually repaid when you pass away, move into long-term care, or permanently leave your home. You borrow against the value of your property and receive a lump sum, which you can use however you like.

There are several different types of lifetime mortgages, and the options change over time as new products come onto the market and others are withdrawn. An independent financial adviser can explain what’s currently available. Common types include roll-up mortgages, drawdown options, flexible payment mortgages, fixed charge mortgages, and home income plans.

Home reversion plans

With a home reversion plan, you sell a percentage of your home to a provider in exchange for a lump sum or a regular income. In most cases, you can stay living in the property for the rest of your life, usually as a tenant, and you may pay little or no rent.

When the property is eventually sold, the provider receives their agreed share of the sale price, including any increase in value over time. How much you can release depends on things like your age, the value of your home, and the provider’s rules.

Sale and rent back

These schemes aren’t technically equity release and are usually aimed at people who are struggling to keep their home. They were responsible for a lot of the bad press in the past, but in some situations they can still be helpful.

Under this arrangement, the provider buys your home at a discounted price and rents it back to you at market rent. The money released is often used to pay off an existing mortgage, and some schemes allow you to buy the property back later on.

One of the biggest risks is that you’re living in the property as a tenant, which means less security. After a certain time, you could be asked to leave, or the rent could become unaffordable — especially if it’s higher than what you were paying on your mortgage.

Pros and cons

All equity release options come with both advantages and disadvantages, and whether it’s right for you depends on your personal circumstances. Because equity release is a major financial decision, getting independent financial advice is essential.

Equity release can give homeowners access to the value built up in their property, either as a lump sum or regular payments. This money can be used for things like paying off debts, making home improvements, or topping up retirement income.

Because it’s a long-term commitment, it’s important to fully understand how it works and what the risks are. Speaking to an independent financial adviser can help make sure you’re making the right decision for your situation.