Equity Release
Equity release describes ways of accessing your property's value to have cash available in later life.
This video will provide you with more detail, explain some of the options and run through key factors and considerations.
Equity Release is available to you if you are aged 55 or over and where you have a reasonable level of equity in your property. There are two main types of equity release products, which are called lifetime mortgages and home reversion schemes.
Lifetime mortgages are where you take a loan against your property, home reversion is where you sell a part or all of it.
It is important if you are considering any form of equity release or borrowing to look at your options carefully, comparing all the factors, costs and legal aspects.
You should also look at alternative options, which do not involve selling a proportion of your property or borrowing against it. Any decisions should only be taken once all these options are fully understood and you have received the benefit of expert advice.
Of the two types of equity release schemes available, it is the Lifetime Mortgage which is by far and away the most popular in today’s market-place.
A lifetime mortgage is, as the name suggests, a loan and therefore you will retain full ownership of your home.
Most lifetime mortgages allow the interest to be rolled up which means the interest is added to the loan but many of the newer schemes allow you to pay the interest if you want to. Some allow you to do either over the life of the loan, it can be that flexible.
Be aware that if you choose to roll up the interest - the loan will grow over time so this needs to be carefully considered.
The capital plus interest is payable either on death or if you go into long term care.
In the case of couples, this relates to the second death or the second person going into care.
Interest rates are likely to be fixed in most cases. If they are variable they will be capped, which means they cannot go above a certain maximum level.
There are various ways a lifetime mortgage can be structured. We can show this as an example on a loan size of £80,000.
One is to take a lump sum up front meaning interest is charged on the full amount from day one.
The second way is to arrange a drawdown facility and to take the loan in stages as and when you need it. In this case interest is only charged on the amounts you have drawn down. This can save money as the undrawn parts do not have interest applied to them until they are drawn down.
The third option is to take your lifetime mortgage in the form of a regular income again with interest only being charged on the amounts released.
The other Equity Release product available to you is a Home Reversion scheme.
Put simply, a Home Reversion scheme is a means of selling a share or all of your home, at a discounted value in exchange for a life time tenancy, which is rent free. In selling that part of your property to a Home Reversion Provider, you release equity from the value of the part you sell.
The tenancy will guarantee your right to remain in the property until death or having to go into long term care.
Then the property is sold, and the proceeds of the sale divided between your Estate and the Home Reversion Scheme provider who will receive the value of their share based on the sale price of your property at that time.
One of the biggest concerns many people have with equity release schemes is that they believe you could lose your home.
This challenge has been tackled head on by the Equity Release sector and today, modern schemes now come with a legal guarantee that you cannot be removed from your property and the value of the loan will never be more than the value of the property.
A big question around Equity Release schemes is whether you can still move to a new house after you have entered a scheme. The answer is ‘yes’ providing the new property is acceptable to the lender and you have enough equity to transfer your loan. Where there is insufficient equity, part of the loan may have to be repaid to the lender from the sale proceeds, especially when the new property has a much lower value, when for instance you are down-sizing.
Another common question is “how much can I or we borrow” – schemes vary and there are various factors which dictate the maximum loan. Your age or ages and your property value are the most important factors. The older you are the more you can borrow. Generally, the maximum is 50% of the property value, but most of the time will be lower than this.
There can be many reasons why Equity Release is required by home owners and it is worth looking at these and considering some of the factors:
Most popular is to use equity release to top up your income in retirement. This means using some of the accumulated growth of the house value and turning this into additional income or capital to support your future lifestyle. This could be to help with specific expenses, your monthly bills or one-off expenses, like buying a car, a caravan, a holiday home or carrying out those much-wanted home improvements.
Another popular reason is to release the money to help with family issues, such as helping a child or a grandchild with their deposit on a property of their own.
In some cases, equity release can be used in financial planning to help structure assets and create liabilities in such a way as to reduce future Inheritance Tax.
Finally, it may be used to help meet Long Term Care costs, especially when care is to be provided at home. It should be noted that if care is required in a nursing or residential hone this may not be possible and the property may have to be sold.
In each of these cases the best solution could vary and as said earlier, there could be other solutions, which do not involve Equity Release or borrowing at all.
This is an area of finances where many new innovations are coming in, including what are known as Retirement Interest Only Mortgages – so it is vital to look at all your options.
There is very prescriptive regulation in this market and in addition, The Equity Release Council and its members promote high standards of conduct and practice, plus significant consumer safeguards.
There are few financial subjects where the value of advice is more important, in fact you cannot take out any equity release loan without using a specialist financial adviser and getting independent legal advice.
We can help you and advise you if Equity Release is suitable for you, the amounts you can borrow, the costs involved, and provide you with a detailed appraisal of your options and everything you need to know to make an informed decision.
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