Understanding later life lending and equity release

Why homeowners consider later life lending

With 56%¹ of UK homeowners being over the age of 55, many are looking at how their property wealth can support their financial needs in their later years. The reasons for considering later life lending are diverse and often tailored to individual circumstances. 

¹England: homeownership by age 2024 

To repay an existing mortgage 

An increasing number of people are extending their borrowing into their 70s and beyond². Later life lending can offer a solution for remortgaging onto a product that is more favourable for older homeowners, addressing the growing need for repayment methods in later life. 

²Homeowners could be paying off mortgages in their 70s as higher rates force borrowers to stretch terms to 35 years | This is Money 

To fund home improvements 

Homeowners' needs evolve over time, and improvements can range from future-proofing the home to make it more liveable to building extensions that allow more space for family visits. Later life lending provides the financial means to undertake such projects. 

To buy a new home 

With various products and income types considered, later life lending can make moving to a new property or even buying a second home a workable possibility for older homeowners, expanding their living choices. 

To gift an early inheritance 

Rather than waiting until they have passed away, homeowners can use later life lending to advance an inheritance and see its benefits within their lifetime. This can help loved ones with significant life events such as buying a property or funding a wedding. 

To fund holidays and large purchases 

Later life lending can also provide the means for homeowners to enjoy their retirement, whether it be through paying for cruises, international holidays, or even buying their dream cars. 

The equity release customer journey 

Lifetime mortgages, the most popular type of equity release product in the UK, allow homeowners to borrow against their home’s value without having to move out or sell. The equity release process is distinct from conventional mortgage borrowing and involves several key steps: 

Enquiry 

The journey often begins with the customer making an enquiry or being referred to a specialist by their existing financial adviser. 

Fact-finding 

An equity release adviser will gather detailed information about the customer's financial plans and current circumstances to understand their needs fully. 

Advice 

Based on the gathered information, the adviser will make a recommendation. If a lifetime mortgage is considered suitable, the adviser will help with the application process. 

Application 

The necessary paperwork is filled out with the adviser’s help and then given to the lender. 

Valuation 

The lender will have the property valued to ensure it provides suitable security for the loan. 

Offer 

If the property's valuation matches the estimate given during the application, the lender will issue an offer. 

Legal advice 

An important requirement from the Equity Release Council is that the customer receives independent legal advice to ensure they understand the terms of their agreement. 

Completion 

Upon accepting the offer and completing the necessary paperwork, the lifetime mortgage can go ahead. The funds are then sent to the solicitor, who passes them on to the customer. 

The role of the Equity Release Council 

The Equity Release Council (ERC) is the industry trade body for equity release in the UK. Established in 1991 as the Safe Home Income Plan (SHIP), it rebranded in 2012. The ERC includes lenders, advisers, solicitors, and other professionals involved in equity release. 

Customer-facing safeguards 

The ERC enforces several product standards to ensure customer protection, including:

• A no negative equity guarantee, ensuring customers never owe more than their home's value.
• Fixed or capped interest rates for lifetime mortgages.
• The right for customers to move home and transfer the product, subject to lender’s criteria and the new home providing suitable security for the loan.
• The right to remain in their home for life or until moving into long-term care, provided it stays their primary residence and they meet the terms of the contract.
• The right to make voluntary payments, penalty-free, subject to the lender’s criteria. 

The equity release process 

As part of the ERC's requirements, customers must receive independent legal advice before completing an equity release product. They can choose their own solicitor or go with a recommendation from their adviser, but the solicitor will act on behalf of the customer and ensure that they understand the terms of the contract they are entering. 

Final thoughts 

Later life lending and equity release offer valuable financial solutions for homeowners in their later years, providing access to property wealth to enhance their quality of life. With the safeguards and structured processes provided by the Equity Release Council, homeowners can navigate this financial choice with confidence and security.