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Equity release and your home

Q: How does equity release work?

Releasing equity means taking some of the equity you have built up in a property and turning it back into money. Your percentage of equity reduces but you have access to liquid funds in return.

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What is equity release? Open in new window

What is home equity? Open in new window

How much equity do I have? Open in new window

How does equity release work? Open in new window

Remortgage to release equity Open in new window

How can I use equity release? Open in new window

Get an Agreement in Principle Open in new window

NatWest mortgages are available to over 18s. Your home or property may be repossessed if you do not keep up repayments on your mortgage. The content on this page is guidance only and does not constitute advice. NatWest does not currently offer 'equity release mortgages', 'lifetime mortgages' or 'home reversion' products.

What is equity release?

Equity release is the name given to specific financial products that allow you to access the equity you’ve built up in your home as cash.

Releasing equity could help you pay for large projects, life moments, or unexpected costs. But it’s worth careful research before you do so.

In this guide, we’ll talk through how equity release works in more detail. We’ll also consider how to release equity from your house.

Please note: NatWest does not currently offer any equity release products.

What is home equity?

Home equity is the value of your home, minus the remaining capital you owe on the mortgage. Or put simply, the amount of your house that you own. It’s also sometimes referred to as mortgage equity or house equity.

Your home equity may go up as you pay off your mortgage and your house value increases.

What can impact my level of equity?

Generally, your home equity gradually rises as you pay off your mortgage. Each mortgage payment will pay back some of the capital you borrowed (unless you have an interest only mortgage), reducing the amount you owe. So, if the value of your property stays the same, your home equity will increase.
However, changes to the value of your property will also impact your level of equity. If an increase in house prices impacts your property, you'll see your level of equity rise. On the other hand, a decrease in house prices would see your equity reduce. It's even possible to go into 'negative equity'.
Retaining equity in your property will be dependent on keeping up your mortgage repayments. Your property may be repossessed if you don't keep up repayments, resulting in you losing any equity in the property.

How much equity do I have in my home?

To calculate how much equity is in your home you can use our home equity calculator.

Here's an example:

Your home is valued at £200,000.
You paid a £30,000 mortgage deposit and have since repaid £50,000 of the capital you borrowed.
Your outstanding mortgage balance is £120,000.
The £80,000 paid off the £200,000 value of the property gives you 40% equity.
Once you've paid off your mortgage, you'll have 100% equity.

Try our home equity calculator Open in new window

What is negative equity?

Negative equity is a scenario where the remaining capital you owe on your mortgage is more than your property is worth. It's often caused by your property reducing in value, compared to the value of the property when you bought it.

Here's a potential example:

You have an outstanding mortgage balance of £250,000 on your home.
Your home was valued at £275,000 when you bought it but is now worth £240,000 after a fall in house prices.
You are in negative equity of £10,000 (-4.2% equity).

Homebuyers with smaller mortgage deposits are more at risk of negative equity. For example, a 5% deposit mortgage means you only have 5% equity in your property when you complete the purchase. Therefore, a 5% fall in house prices would be enough to cause negative equity.

Why can negative equity be bad?

Negative equity can become problematic if you want to sell your home. If you sell your property for less than your outstanding mortgage, you'll still need to pay off the remaining balance.

Unless you have a source of funds you can use to repay this difference, you might find it difficult to sell up or move.

It can also be difficult if you want to remortgage. You may not be accepted to move to a new deal with another provider whilst in negative equity.

How does equity release work?

Releasing equity means taking some of the equity you've built up in a property and turning it back into money. Your percentage of equity reduces but you have access to liquid funds in return.

There are two main types of equity release products that could help you to release equity tied up in a property. However, costs and interest are usually associated with these property equity release products.

Information Message

NatWest does not currently offer 'equity release mortgages', 'lifetime mortgages' or 'home reversion' products. This information is for guidance only.

Lifetime mortgages

A lifetime mortgage (or equity release mortgage) is one potential way of taking equity out of your home. It’s a long-term loan that is secured against your property. It’s normally repaid when you move into long-term care or upon death.

Information Message

Home reversion

This is where you sell part of or all your property to a home reversion provider. When you move into long-term care or upon death, the property is sold, with proceeds divided accordingly to the proportions of ownership.

Information Message

Illustration of a yellow house with a stack of coins

Advantages of releasing equity from your house

There are a range of potential advantages to releasing equity from your house.

For example, you could access a lump sum of cash, and continue living at your address while benefiting from some of its equity.

What to consider when releasing home equity

However, there may be some drawbacks to property equity release too.

For example, equity release:

could have a higher rate of interest than an ordinary mortgage
may not unlock the true value of your home, compared to selling it on the open market
brings early access to funds that you may need to rely on later, such as during retirement
can be complicated to undo if you change your mind
is a big commitment, and you may find it difficult to move home or downsize later
could affect your entitlement to state benefits
might carry arrangement fees.

Can I remortgage to release equity?

Yes, it may be possible to release equity from a property when you remortgage. Remortgaging is taking out a new mortgage on the same property. This can be done with your current lender or a new lender.

It involves staying in your current home with a new mortgage based on the equity you have built up.

Read our guide to remortgaging Open in new window

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What if I own my property outright?

If your property is mortgage-free, you may be eligible for an unencumbered mortgage.

This works similarly to a remortgage as it allows you to release equity by borrowing against your property's value.

However, unlike a remortgage, an unencumbered mortgage is a completely new mortgage secured against your property.

How unencumbered mortgages work Open in new window

What can I use equity release for?

Taking equity out of your home could have various uses. For example, it may help you to pay for home improvements. Or you could use the cash to supplement your pension. You might also use the money to support family, or to cover travel costs.

NatWest does not offer equity release products. But you might be able to achieve your goals with a remortgage or additional borrowing.

Like all financial decisions, releasing equity from your home is something that needs careful thought.

Explore our additional borrowing guide Open in new window

Home equity release: FAQs

What are the downsides of equity release?

Equity release has some potential downsides. For example, you may miss out on additional value on the market rate of your home if you opt for a home reversion plan.

You might also spend funds in the short term that you require in later life. You could face arrangement fees when signing up for property equity release too.

Is there an alternative to home equity release?

Yes, there are alternatives to property equity release. For example, you could consider remortgaging your home to access its equity without releasing it. Or, if you own your property outright, you could consider an unencumbered mortgage.

However, you'd need to be comfortable with the new mortgage terms, conditions, and interest rates, and ensure you can keep up with the repayments.

Other possible alternatives include renting a room out or downsizing to free up cash.

Do you pay back equity release?

With a lifetime mortgage, repayments may not be due until you pass away. The interest might be rolled up and added to your loan over time. This could mean that you have far less equity in your property to pass on to loved ones. But it’ll ultimately depend on the exact terms and conditions of your equity release agreement.

For example, certain lifetime mortgages might allow you to repay interest as you go along instead.