Accessing the equity built up in a home can be a practical solution for those needing a financial boost, especially in later life.
Whether it’s for retirement, home improvements, debt consolidation, or simply to improve cash flow, there are several strategies available in the UK for releasing home equity.
This guide explores five smart ways to unlock the value tied up in your property while weighing up their advantages, drawbacks, and long-term implications.
What is Home Equity and Its Value?
Home equity refers to the portion of your property that you own outright. It’s calculated by taking the current market value of your home and subtracting any outstanding mortgage balance.
Over time, as you pay off your mortgage and property values increase, the amount of equity you hold typically rises.
A key part of understanding how to get equity out of your home is knowing how much of it you actually own.
Lenders and financial advisers often look at the loan-to-value (LTV) ratio, which helps determine how much you might be eligible to borrow against your property.
Equity Value by Property Type
| Property Type | Market Value | Mortgage Balance | Home Equity |
| Detached House | £400,000 | £150,000 | £250,000 |
| Semi-Detached House | £300,000 | £120,000 | £180,000 |
| Flat | £250,000 | £100,000 | £150,000 |
| Bungalow | £275,000 | £75,000 | £200,000 |
Equity can be accessed in various ways depending on your age, income, property type, and future plans. Each option has different costs, eligibility criteria, and impact on your financial future.
Why Access the Equity in Your Home?
Accessing equity can provide a flexible source of funds for many purposes. In the UK, common reasons include funding retirement, covering large expenses, or helping family members get on the property ladder.
Releasing equity can allow homeowners to:
- Fund renovations or home improvements
- Pay off high-interest personal debts
- Provide financial assistance to children or grandchildren
- Supplement pension income in retirement
It’s important to consider the potential implications, such as a reduction in the value of your estate or an impact on eligibility for means-tested state benefits.
Financial advisers often recommend thorough planning before committing to any form of equity release or secured borrowing.
What Are the 5 Smart Ways to Access Cash?
Option 1: Equity Release Schemes
Equity release is one of the most well-known ways for older homeowners in the UK to unlock the cash value stored in their property.
It is designed specifically for those aged 55 or over who own their home outright or have a small mortgage remaining. There are two main types of equity release: lifetime mortgages and home reversion plans.
Lifetime Mortgages:
A lifetime mortgage is a loan secured against your home. You retain full ownership of the property, and the loan is repaid using the proceeds from the sale of your home when you die or move into long-term care.
You can either take the money as a lump sum, a series of smaller amounts (drawdown), or a combination of both.
Many modern lifetime mortgages offer flexible features such as:
- Optional interest payments to reduce the final repayment
- Drawdown facilities to access funds in stages
- Inheritance protection, so a portion of the property’s value is preserved
Because interest compounds over time, the total amount to be repaid can grow significantly. However, if you choose a product with a no-negative-equity guarantee, you will never owe more than the value of your home.
Home Reversion Plans:
Home reversion involves selling a share or all of your property to a provider in exchange for a tax-free lump sum or regular payments. In return, you receive a lifetime lease, allowing you to live in your home rent-free until death or a move into long-term care.
These plans typically offer less money than the full market value of your home. For instance, you might receive only 30–60% of the property’s value depending on your age and health.
Considerations:
- You must seek legal and financial advice before taking out an equity release plan.
- It may reduce your entitlement to means-tested benefits.
- There could be early repayment charges if you choose to repay the plan earlier than agreed.
For those who are asset-rich but cash-poor, equity release can offer financial freedom without the need to move.
Option 2: Remortgaging to Release Equity
Remortgaging is a popular route for homeowners of all ages looking to access some of the capital locked in their home. This involves switching your current mortgage to a new one, typically with a different lender, for a larger amount than you currently owe. The surplus amount is then released as a lump sum of cash.
For example, if your home is valued at £300,000 and you owe £100,000 on your existing mortgage, you may be able to remortgage for £150,000 and release £50,000 in cash.
Benefits of Remortgaging:
- Often lower interest rates than other forms of borrowing
- Large sums can be released
- Repayment terms can be spread over many years
Things to Consider:
- Affordability checks will apply, including income, credit score, and other debts
- You may face early repayment charges on your current mortgage
- Arrangement, valuation, and legal fees could apply
Remortgaging is best suited to individuals with stable income who can afford the increased monthly repayments. It can be a good option if interest rates are favourable or if your home’s value has increased significantly since you took out your original mortgage.
Option 3: Taking Out a Home Equity Loan
A home equity loan, also known as a homeowner or secured loan, allows you to borrow a lump sum using your property as collateral. Unlike remortgaging, this type of loan is taken out in addition to your existing mortgage, not in place of it.
These loans are typically fixed-term with monthly repayments of both capital and interest.
Ideal Scenarios for a Home Equity Loan:
- You have a low-rate mortgage you don’t want to change
- You need a specific lump sum for a one-off expense (e.g., renovations or education)
- You have a stable income to manage the repayments
Advantages;
- Fixed repayment terms allow better budgeting
- Loan amounts are typically higher than unsecured loans
- Competitive interest rates due to the secured nature of the loan
However, it’s important to remember that failure to repay could result in the loss of your home, as the property is used as security for the loan. Additionally, fees such as arrangement costs, broker charges, and early repayment penalties may apply.
Home equity loans are best suited for borrowers who prefer a predictable repayment plan and are confident in their financial stability over the loan period.
Option 4: Second Charge Mortgages
A second charge mortgage is a secured loan that sits alongside your existing mortgage. It is sometimes referred to as a “second mortgage” and is useful when you want to release equity but don’t want to remortgage your entire property.
This might be the case if:
- Your current mortgage has a low interest rate or high early repayment charges
- You’ve had a change in circumstances since taking out your original mortgage
- You want to keep the current mortgage terms intact
How It Works:
A second charge lender provides a loan secured against your home, and in the event of repossession, your original mortgage lender gets paid first. You’ll repay the second charge mortgage in monthly instalments, separate from your original mortgage payments.
Pros of Second Charge Mortgages:
- Maintain your existing mortgage deal
- Useful for large borrowing needs
- More accessible for those with less-than-perfect credit
Cons to Be Aware Of:
- Interest rates can be higher than your main mortgage
- You now have two monthly repayments to manage
- Can be risky if property values fall
Lenders typically require a valuation and conduct thorough affordability checks. Legal and administrative fees also apply. Despite this, second charge mortgages can be a helpful solution for those with equity but constrained by their current mortgage arrangements.
Option 5: Downsizing or Selling the Property
For many homeowners, particularly in or approaching retirement, downsizing is the most straightforward and cost-effective method of accessing home equity. It involves selling your current property and buying a smaller or less expensive one, with the leftover proceeds becoming available as cash.
This method does not involve borrowing, meaning there are no interest payments, ongoing debt, or legal loan agreements involved.
When Downsizing Makes Sense:
- You no longer need as much space (e.g., children have moved out)
- You’re looking to cut ongoing costs such as heating, maintenance, or council tax
- You want to release a large lump sum of cash without taking on debt
Example:
If you sell your home for £500,000 and purchase a new home for £350,000, you effectively release £150,000 (minus moving costs and fees) to use as you wish.
Key Considerations:
- Emotional impact of leaving a long-term home
- Availability of suitable smaller properties in desired areas
- Costs such as estate agent fees, solicitor charges, stamp duty, and removal expenses
Despite the potential emotional challenge, downsizing can offer the most financial freedom, particularly if you wish to avoid interest-bearing products. Many retirees use this method to free up equity for travel, gifting to family, or increasing income in later life.
Conclusion on How to Get Equity Out of Your Home
Releasing equity from your home can be a powerful financial tool, but it must be approached with careful thought and professional guidance.
Whether you opt for equity release, remortgaging, a home equity loan, or even downsizing, ensure the method aligns with your financial goals, lifestyle needs, and long-term stability.
FAQs About Accessing Home Equity
What is the best way to release equity from my home?
The best method depends on personal circumstances. For retirees, a lifetime mortgage may be suitable, while younger homeowners might benefit from remortgaging or a home equity loan.
Is equity release safe in the UK?
Yes, if taken from providers regulated by the Financial Conduct Authority (FCA) and who are members of the Equity Release Council, ensuring clear terms and protection.
Can I lose my home with equity release?
You retain ownership with most equity release schemes, particularly lifetime mortgages. However, with home reversion plans, you may give up partial or full ownership.
How do second charge mortgages differ from remortgaging?
A second charge mortgage is an additional loan on your property, while remortgaging replaces your current mortgage with a new one. Second charges are useful when your current mortgage has good terms you want to keep.
Will I pay tax on the equity I release?
No, the money released is typically tax-free, as it’s a loan, not income. However, it may affect eligibility for means-tested benefits.
Can I still move house if I’ve released equity?
Yes, particularly with portable lifetime mortgages or if you’ve taken a second charge mortgage. Always check your provider’s terms before moving.
Is it possible to pay off equity release early?
Some providers allow early repayment, often with fees. Look for plans with flexible terms or low early exit penalties if this is a concern.
