How much equity can I release?

Oct 28, 2022 | Mortgages

Using equity release, homeowners aged 55 or over can take out a loan worth between 20% and 60% of their home’s value. Releasing equity allows you to borrow against your home while continuing to live there, which can provide you with some additional income as you approach retirement.

Equity release is a complicated subject, and the amount you can expect to receive depends on a range of factors.

Working out your equity

The equity of your property is its value, minus any outstanding debts such as mortgages. That means if your home is worth £250,000 and you still have £50,000 left to pay on your mortgage, your equity will be £200,000.

The percentage of equity you can release on your property can vary, but will generally range from 20% to 60%. Depending on your plan, you can take the loan either as a tax-free lump sum, or in regular monthly instalments.

Contributing factors

The size of your loan depends on a number of factors, including the property’s value, any outstanding debts, your age and your chosen equity release provider.

What kind of property you own can affect your eligibility for equity release plans. If your home is a listed building, for example, you may find it hard to find a provider unless you seek out a specialist.

Similarly, the location and condition of the property can have an impact on the amount you can receive.

Your age and health will also affect how much you are entitled to. This is because lenders need to estimate how long the property will be occupied for. Generally, the older you are, the more equity you can release.

Prospective lenders will need to consider all these factors and conduct a professional valuation of your home to determine how much equity you can release.

Types of equity release

What kind of scheme you choose can also affect how much equity you can release and when.

With a lifetime mortgage, you maintain ownership of your home. You can expect this type of loan to amount to no higher than 60% of your home’s equity. No repayments are required while the owners are still alive – instead, any unpaid interest is added to the loan. This means debt can grow rapidly if the interest is allowed to be rolled up. To combat this, some lenders offer a ‘no negative equity’ guarantee, which means your loved ones will never end up owing more interest than the property is worth.

Home reversion schemes allow you to sell all or part of your property in return for compensation. In this case, the home reversion provider will co-own your home while you retain the right to live there. With this kind of scheme, you can expect your loan to be between 30% and 60% of the market value of your home – but this can be higher. Most of these providers only accept applications from homeowners aged 60 or 65 upwards.

You can take out a home reversion plan on any property you own, while you can only use a lifetime mortgage to release equity on your primary residence.

Weighing up your options

As well as looking into how much money you would be able to borrow, you should consider all the costs and benefits of equity release.

One advantage is that it provides additional income as you approach retirement. However, taking out this kind of loan can affect the value of your estate, reducing the amount of inheritance you pass on to your family when you die.

Choosing to release equity is a major financial decision, and you should always consult an accountant before securing any debts against your home. At Roebuck Mortgages, our qualified advisers carefully review your circumstances to identify how much equity you could receive and which plans will work best for you.

Equity release is a complicated subject, but our experts can guide you through the process, as well as advise you on potential alternatives such as downsizing or using your savings.

Visit our lifetime mortgages page to find out how we can help your home look after you.