Frequently Asked Questions

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How is Equity Release treated for DFG purposes?

Equity release is increasingly common. It allows older owner-occupiers to take some of the equity out of their home. Normally, this is done via a "lifetime mortgage", a form of mortgage on which no interest or capital repayments are usually made. The lender usually gives the customer a lump sum.

As equity release should not be done for investment, all or most of the lump sum raised will usually be spent within a short time of being released. In such cases, the spending should not be regarded as "voluntary deprivation of resources", as the capital has been raised for specific purposes, and then spent, and this is clearly unconnected with the DFG means-test.

In some cases, equity release is done via a "draw down" process, where the lump sum is taken as needed over a period of years. If the draw down is set up on a regular basis, e.g. £1,000 per month over 5 years, then the payments should be treated as income for means-testing purposes. If the draw down facility is used to take lump sums at irregular intervals, then it should be treated as merely adding to the customer's capital.