Equity Release in the UK: Pros and Cons

Equity Release in the UK

With equity release in the UK, homeowners can take out a loan against their home. This is often more cost-effective than taking out a mortgage or remortgage and offers some people peace of mind. Equity release is available for anyone who owns property outright or has a low mortgage balance and it could be used to pay off debts, finance retirement living costs, fund children’s college fees or provide inheritance money to family members. However there are drawbacks to this type of borrowing which should be taken into consideration before entering into any agreement with an equity release provider.

Equity Release In The UK

Equity release is expensive: It’s important to factor in the fees and interest that will accumulate with equity release. These can be anywhere from around £20,000 for a typical loan of £25,000 over five years up to as much as £40,000 if you borrow more than that upfront or take out a longer term mortgage. In addition there are some small administration charges involved which vary depending on how large your property value is – typically between 0% and 15%.

You’ll have less living space: When using equity release it may not just be your capital limit being taken into consideration but also any increase in borrowing costs. With this type of lending you need to make sure you’re aware what percentage of the home will you actually be able to live in. It’s not unusual for the figure to be below 50%.

You’ll have less independence: With equity release, the property is taken out of your hands and becomes somebody else’s concern; it will need to be maintained by someone other than you and may incur higher rates of interest if mortgage costs rise. This means that when you die, more tax is payable on its market value rather than just relying on the proceeds from selling or passing on an asset as a gift.