Equity release is the bank path to unlocking capital from a property a borrower already owns. Rather than adding a separate facility, the lender refinances or tops up the existing first mortgage, increases the loan balance, and pays the borrower the difference in cash.
The advantage of this path is rate. A refinanced first mortgage prices at ordinary bank rates, typically 6-8% p.a., against the 9-12% p.a. a private second mortgage carries for the equivalent amount. It also produces a single combined facility rather than two separate charges over the property.
The drawback is process. Equity release triggers a full reassessment of serviceability on the entire new combined balance, not just the top-up amount, and typically takes 4-8 weeks to settle. A loan approved years earlier under different income or rate conditions can fail that reassessment even where the borrower's actual position is unchanged. Combined lending is capped at around 80% loan-to-value ratio without lenders mortgage insurance (up to 90% with it).
Where equity release is unavailable or too slow, a second mortgage releases the same equity without touching the existing first mortgage or triggering a full reassessment, at a higher rate on the incremental amount only.