Two routes let over-55s unlock the cash tied up in their homes, here is how lifetime mortgages and home reversion plans compare, with the advantages and drawbacks of each.
Equity release covers a range of financial products designed to give people aged 55 and over access to the cash tied up in their homes. You can take the money you release as a single lump sum, as a series of smaller payments, or as a combination of the two. There are two main routes to releasing equity: a lifetime mortgage and a home reversion plan.
With a lifetime mortgage you secure a loan against your property, which must be your main residence, while keeping full ownership of your home. You can set aside a portion of your property's value to leave as an inheritance if you wish. You can choose to make regular repayments or let the interest roll up over time. The loan, plus any accrued interest, is usually repaid by selling the property when the last borrower passes away or moves into long-term care.
Some lifetime mortgage products now give you the option to pay off some or all of the interest, or even part of the capital. As with standard mortgages, the terms and conditions vary from one lender to another, so it pays to compare carefully. If you want to understand how the money can be taken, our guide to the loan drawdown options explains the lump sum, drawdown, interest serviced and monthly income choices.
With a home reversion plan you sell part or all of your home to a home reversion provider in exchange for a lump sum or regular payments, typically ranging from around 20% to 60% of the property's market value. You keep the right to live in the property, often rent-free, until you pass away or move into long-term care, though you remain responsible for maintaining and insuring it.
You can protect a percentage of your property for the future, for example as an inheritance, by selling only a share of it. The percentage you retain stays the same regardless of how property values move, unless you choose to release more equity later. When the last borrower dies or moves into long-term care, the property is sold and the proceeds are split according to the ownership shares.
When weighing up a home reversion plan, it is worth checking several things: whether you can release equity in instalments or only as a lump sum, the minimum age required, the percentage of market value you would receive (this usually rises with age), and the maintenance and inspection expectations, which can differ between providers.
Both routes have advantages and drawbacks, which is why it is so important to speak to a specialist adviser who can help you decide what is most suitable for you. Here are some of the most common pros and cons of each.
Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. To understand the features and risks, ask for a personalised illustration. If you would like to read more about the safeguards in place, see our guide on whether equity release is safe.
Lifetime mortgages and home reversion plans suit different people and circumstances. Speak to an adviser who will explain the options, the costs and the implications, and recommend the most suitable route for you.