Pros & cons of equity release, is it a good idea?

You may feel that equity release is appropriate for you, but you should weigh the benefits and drawbacks before making any major choices. While equity release could improve your quality of life dramatically; it is necessary to be aware of the possible downsides.

 What is equity release?

Your equity is equal to the total market value of your home minus any outstanding mortgage. In other words, it’s the amount you’d get if you sold the house for cash.

If you don’t want to sell your house, though, you may still be able to get a big chunk of this money through equity release. Equity release is where you, as a homeowner, would release money tied up in your property, potentially up to 60% of the property’s value. The money is paid out via a cash lump sum, a regular income, or a combination of the two, and can be used for a multitude of things, from funding your retirement, clearing debts, or even re-investing into your home to potentially increase the property’s value.

Equity release might give you with a substantial quantity of money while allowing you to remain in your property. It’s especially important for paying for major bills later in life, such as long-term care. However, there are several advantages and disadvantages to equity release that should be considered before jumping straight into it. 

What are the benefits of equity release?

The main benefits of equity release are:

  • You won’t have to pay tax on the money you release
  • You get to stay in your own home
  • You can access the money when you need it
  • You could avoid paying inheritance tax
  • You’ll never owe more than the value of your home

A large benefit of equity release is that it allows you to spend money immediately rather than storing it in your house. Because of the UK’s long-term growth in house prices, a considerable percentage of homeowners’ money has been invested in their home and is therefore unreachable. If the value of your house has risen over time, equity release allows you to access part of that money to augment your retirement income rather than leaving it all to your beneficiaries or to pay for long-term care.

What are the cons of equity release?

The most significant downside of equity release is that it does not compensate you for the full market worth of your house. You will receive significantly less money than if you sold the house on the open market – but you would still have to find another somewhere to live in that case.

Some more cons of equity release are:

  • You might be subjected to early exit fees
  • You can’t leave your home as an inheritance
  • You won’t be able to take out another loan against your house
  • You will have to pay set up fees

Is equity release a good idea?

Your circumstances will determine if equity release is appropriate for you. Some reasons to consider equity release are:

  • Your other savings and sources of income will be insufficient to fulfil your retirement demands.
  • You are unconcerned about diminishing your family’s fortune or you have no beneficiaries.
  • This is the best solution, according to an independent financial consultant.

Some reasons to avoid equity release include:

  • You do not need equity release, for example to supplement your retirement income.
  • You have the option of downsizing your house to free up some cash.
  • You want to leave as much of your inheritance as possible to your children and grandchildren.
  • An independent financial adviser has told you this option is not the best one for you.

If you are looking to release equity from your property, please get in touch with one of our advisers.

As independent mortgage advisers, Veracity Financial Planning can offer you deals from across the whole of the market. We work with a range of lenders, high-street and challenger banks who will be able to lend to most clients, specialist finance lenders who may be required for more unusual financing needs and private banks for individuals looking to get a mortgage for more than £500,000.

We work with our clients in Nottingham and the East Midlands to understand their unique circumstances and find bespoke solutions to get the best deals on the market.


Picture of Woody Snapper

Woody Snapper

Woody works with individuals and business' looking for corporate finance, high net worth mortgages, complex loans, bridging loans and development finance.

To contact Woody.

Tel: 07922 413586