Equity Release

With equity release popularity set to continue increasing over the coming years, we expect to see many more homeowners tap into the wealth of their property to free up cash.

There are several factors behind this increase in popularity. First, market innovation has seen the number of later life products grow. Second, just as society changes, so do the reasons why people use lifetime mortgages. While many people continue to use the product to fix up their homes, an increasing number of people are using lifetime mortgages to support their retirement income or fund dream holidays. Thirdly, fewer people are buying into some of the myths surrounding lifetime mortgages.

The flexibility and certainty offered by lifetime mortgages are a large reason why they are the most popular type of equity release product. Many people value the option to stay in their homes while accessing the wealth stored in their property. This option to age in place means that people don’t have to downsize and can continue to live in familiar surroundings. Additionally, lifetime mortgages give people greater freedom to use their wealth as they want. For example, we are seeing more people access the cash tied up in their home to pass on money to loved ones, either by helping them get on the housing ladder, or gifting money to help with school or university fees.

Taking out a lifetime mortgage, a loan secured against your home is a long-term commitment that you should consider carefully, lt will reduce your inheritance and could impact your tax situation and entitlement to means-tested benefits.

Equity Release will reduce the value of your estate and may affect your entitlement to means-tested benefits and tax status. You are strongly advised to register a lasting power of attorney to mitigate the risks associated with managing financial affairs in the event of cognitive decline.

A Lifetime Mortgage will reduce the value of your estate and may affect your entitlement to means-tested benefits and tax status. The impact of not servicing monthly interest payments on a Lifetime Mortgage is that the outstanding debt can grow rapidly, thus reducing the value of your estate. For example, if the interest rate was 7% a year, a £50,000 loan would double to £100,000 after 10 years assuming no repayments are made. This is an example for illustrative purposes only and personalised advice and recommendations should be sought from a qualified professional. You are strongly advised to register a lasting power of attorney. This will allow your affairs to be managed by somebody else if your mental abilities significantly decline.

What is equity release?

Equity Release can give eligible homeowners aged 55 or older access to some of the money tied up in the value of their property.

These plans could allow you to take cash from the value of your home, without having to move out. If you own your property outright or if your property’s worth more than any loans you have secured against it, then you’ve more than likely got equity tied up in your home.

Equity release helps you release cash for whatever matters most in life. Here are some of the reasons why people could release money from their homes:

• Adapting your home to enable independent living
• Renovating or refurbishing, from a new kitchen to new furniture.
• ‘Topping up’ retirement income – making life more comfortable.
• Paying for health care – one-off private medical bills or receiving ongoing care.
• Helping children and grandchildren with house deposits, student fees, weddings or other life events.
• Inheritance Tax Planning – managing your estate and, wealth and tax planning.
• Paying off debt – including the shortfall on an interest-only mortgage.
• Enjoying life – leisure interests, buying a new car, taking a holiday or visiting relatives abroad.

Types of equity release

There are two main types of equity release: a lifetime mortgage, which allows you to borrow money against your house; and home reversion, whereby you sell a share in your house to a home reversion provider.

Lifetime Mortgages

With a lifetime mortgage:

• You borrow a proportion of your home’s value.
• Interest is charged on the amount throughout your lifetime.
• You continue to own and live in your home.
• You do not have to repay the loan until you die or go into long term care.

Drawdown Lifetime Mortgages

With a drawdown lifetime mortgage:

• You take smaller sums over a period of time.
• You only incur interest on the money you release.

If you take out a drawdown lifetime mortgage, it is important to consider a lasting power of attorney.

Is equity release right for you?

Some of the benefits:

• You can stay in your home for as long as you choose – for the remainder of your life (this will either be until the last person has died or moved into long term care).
• You can never end up owing more than the value of the property.
• Disclosed adverse credit will usually not affect borrowing.
• No proof of income is necessary.
• You have the flexibility to choose whether or not to make monthly payments.
• An alternative option to standard mortgages and loans.
• Lifetime mortgages are highly regulated financial products and have utmost consumer protection, giving you peace of mind.
• Legal Advice, acting on your behalf, solicitors will cover the legal aspects.

Some elements to be aware of:

• Equity release plans are not suitable for everyone.
• It will reduce the value of your estate.
• Could affect any current or future entitlements to means-tested state benefits.
• Although secured on your property, the loan is portable and does not prevent you from moving home.

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