The equity you own in your home, put simply, is the value of the property less those debts secured against it, which will include any mortgage. Equity release schemes enable you to take some of that asset as cash, in return the lender may take a share of the ownership of the property or have a charge on it. The monies released are not subject to taxation as you are simply freeing up you own asset. In addition you do not have to move house, but you continue to live there, usually for the rest of your life.



The general principles of an equity release scheme are that you have to own your own home, be over a specific age (typically over 55) and you must agree to continue to maintain your home to a good standard. In return you receive a cash lump sum, a regular income, or both. In addition you retain the right to continue to live in your home. Because of the deferred nature of repayment of these schemes you will never be given the full market value of your property.

Most equity release schemes come in one of two basic types; either a lifetime mortgage or a home reversion;

A lifetime mortgage is just that, a mortgage for the lifetime of the borrower. Title of the property remains with the borrower, while the lender registers a charge against the property and is repaid from the proceeds of the property sale normally after the death of the borrower.

With a home reversion equity release plan the owner sells all or part of their home. Ownership will transfer in full or part to the reversion company with the owner continuing to live there as a tenant of the company. A lease will define the conditions and term of the tenancy and normally the home is sold either when the tenant dies or moves out of the property.

The world of equity release has seen substantial growth in the past few years with many organisations now offering their services in this sector. Whilst equity release can seem an ideal solution it is not suitable for everyone. Understanding exactly what is involved is vital if this is something that you are seriously considering.

Equity release schemes are only one way of raising cash. Alternative methods should also be considered to ensure the most suitable approach is taken. Options like downsizing, or drawing frozen pensions might achieve the objective without losing title to the property. Ensuring that benefit entitlements are being claimed in full may also help as might the sale of investments. An individuals’ circumstances will ultimately dictate which is the right approach to take.

Sound and independent financial advice is critical in ensuring that the best decision is achieved for the individual.

The cash lump sum is what most people are looking for when considering equity release schemes. Many schemes also offer the option of reducing the size of this sum and taking it in part as a regular income. There are schemes which also offer the option of drawing cash as and when desired within specified limits. It is once again the individuals’ objectives and personal situation which will dictate the most appropriate course of action.

If equity release is not an option or not suitable and debt was the motivation behind considering it, then more standard approaches such as debt management plans or IVA’s (Trust Deeds in Scotland) might be a better option.