EQUITY RELEASE
You may be eligible to unlock cash from your existing property that can be put towards other projects, purchases, or investments.
The ‘equity’ in your home is the difference between its value and any outstanding loans, such as a mortgage, that is secured on it.
Equity release is a way of unlocking a proportion of the value – or equity – you have in your home, without having to move, in exchange for a tax-free lump sum.
The amount that can be released will vary depending on a range of factors, including your age, your medical history, and the property’s value. Depending on the plan you choose, your equity can be distributed to you via a regular monthly income, a lump sum payment, or the means to release more equity as and when you need to.
To be eligible for equity release, you will need to own your own home, and be over 55 years of age.
For tailored equity release advice, and to get a personalised illustration, please contact our financial advisers in Essex today.
WHAT CAN EQUITY RELEASE BE USED FOR?
There are no restrictions on what the released money can be used for.
Many people choose to put their funds towards home improvements and renovations; purchasing a car; going on the holiday of a lifetime; or gifts for friends and family, particularly for children who are saving up for a deposit on a home of their own. In other cases, the cash is simply used to top up their income in later life.
Please note:
Equity Release, Lifetime mortgages & Home Reversion Plans will reduce the value of your estate and can affect your eligibility for means tested benefits.
WHAT ARE THE MAIN TYPES OF EQUITY RELEASE?
Broadly speaking, there are two types of equity release plan available:
LIFETIME MORTGAGES
Lifetime mortgages are the leading equity release plan type in the UK. They enable you to take out a loan against the value of your house, whilst still retaining ownership of it (and being responsible for maintaining it).
Some lifetime mortgages will allow you to ring-fence some of the property’s value as inheritance for your family. However, your estate will be expected to pay off the rest of the mortgage when you or the last borrower passes away, meaning there may be less money left for your beneficiaries.
How do the repayments work?
You can choose not to make any repayments of interest or capital on this loan during your lifetime. Instead, any interest owed can be added to the initial sum borrowed, plus any money borrowed in the future.
This loan, plus the interest, is repaid to the equity release company from the sale of your home (or from your estate) when you or your surviving partner die or move into long term care. If there’s not enough money left from the sale to repay the mortgage amount in full, your beneficiaries may need to repay any extra from your estate. That said, plenty of lifetime mortgage schemes now offer no-negative-equity guarantees, which promises that you or your beneficiaries will never have to pay back more than the value of your home, even if the debt becomes larger than the property’s value.
HOME REVERSION PLANS
Home reversion plans enable you to sell a share of your home in exchange for a lump sum or regular income. Under this type of agreement, you will generally be allowed to stay in the property as a tenant, rent-free, although some may charge a nominal rent (e.g. £1).
Home reversions plans can be a logical choice for people who need fast access to some or all of their equity, particularly if they need to enter long-term care but would rather be cared for in their own property. However, they are higher risk, as they are based on the premise that you will sell all or part of your home for much less than it is worth – sometimes as low as 20% of the market rate, depending on your age and/or the state of your health. The older you are, the higher the percentage of the value you will receive, as you will be perceived as a lower risk in terms of how much the reversion company can expect to get back on their investment.
How do the repayments work?
You do not make any repayments on a home reversion plan, because it is not a loan. You will sell a share of your property to the home reversion company, and when the house is sold when you or your surviving partner dies or moves into long term care, the company will be repaid in line with the share that they bought.
HOW TO DECIDE IF EQUITY RELEASE IS RIGHT FOR YOU
Equity release is a viable option for many individuals, couples, and families – but it’s not the right approach for everyone. Lifetime mortgages and home reversion plans will inevitably reduce the value of your estate and can affect your eligibility for means tested benefits, so it’s important to do your homework and plan for any eventuality when considering entering either of these schemes.
To understand the features and risks, please ask us for a personalised illustration. Equity release is only available to people over 55.
Our mortgage charges include a fee of £950 that is payable on completion only. AIC Financial Ltd will also be paid commission from your chosen lender/company.