Equity release is a financial product that allows homeowners, typically those aged 55 and above, to unlock the equity tied up in their property. It provides a means for individuals to access a portion of the value of their home without having to sell it.
An increasing number of individuals are leveraging the equity in their homes to complement their retirement income requirements.
This is the most common form of equity release. With a lifetime mortgage, you can borrow against the value of your home while retaining ownership. The borrowed amount, along with accumulated interest, is repaid when you pass away or move into long-term care. Alternatively, you can choose to make interest payments during the term of the loan to reduce the overall debt.
With a home reversion plan, you sell a portion or the entirety of your home to a provider in exchange for a lump sum or regular income. However, you still have the right to live in the property rent-free until you pass away or move into long-term care. Upon your death or relocation, the provider receives their share of the property's value from the sale.
The money can be used for almost anything you desire. Whether it's covering day-to-day expenses, providing financial assistance to family members, settling an interest-only mortgage, purchasing a new vehicle, or funding a well-deserved holiday, the choice is yours. However, it's important to note that opting for equity release will reduce the overall value of your estate.
At Advice Plain & Simple, our specialists will explain the intricacies of equity release, help you assess whether it is the right option for you, and explore alternative solutions if necessary. Our mortgage advisors will provide bespoke recommendations tailored to your needs and assist you in finding the most suitable equity release product from a range of reputable lenders. Additionally, we will also help you understand the potential implications and risks involved, ensuring that you have a clear understanding of the costs, impact on inheritance, and other important factors.
We have access and can advise on thousands of products, helping you find the right deal for your circumstances.
Your questions answered.
There are two different types, Lifetime Mortgages, which are a secure charge over your house, and interest is payable but it’s typically rolled up onto the balance, meaning you don’t make any payments.
Whereas the other option is Home Reversion Plans, which aren’t really a great deal anymore, but are where you transfer some or all of the ownership of the property to the plan provider to release a lump sum, which is likely to be a quite considerable discount on the property value. In most instances when we talk about equity release it’s referring to Lifetime Mortgages.
Everybody looks at this option for different reasons, but in all instances we recommend you speak with an adviser to help you understand if what you’re looking to do is the right thing for you.
People use equity release for all sorts of different reasons, but some of the most popular ones are repaying a mortgage. Quite a lot of people have equity in their property but not a lot of disposable Income, so they look to release equity to enjoy their retirement. Some people like to release equity for home improvements, buying a new car or helping a relative out with a deposit for their property.
An adviser will set it up for you. There’s a valuation like any mortgage and what it costs will vary per client and provider. Some of the fees you can add to the loan and all the fees are explained clearly before we take out any type of plan.
Interest rates will vary but at the moment you’re looking at rates around 4% upwards. A lot depends on the Loan to Value, how much you’re looking to borrow versus how much your property is worth, the age of the client and so on. The important thing to remember with the interest on these is that you don’t have to make any payments if you don’t want to.
The pros vary per client, but there are no monthly payments required, no affordability check or credit checks and the money can be used for pretty much anything you like. The cons are, if the interest is rolled up it can have a compound effect each year, as you pay interest on top of your interest, which can lead to the erosion of your equity in the property, which ultimately reduces the inheritance that your loved ones would receive.
Most providers are part of the Equity Release Council and adhere to their standards. These standards dictate that the client will have the right to remain in the property for life or until they go into care, and the right to move to another suitable property subject to checks being carried out.
Most providers now offer a no negative equity guarantee, which means you can’t owe more than the property is worth and the interest rate is fixed for the lifetime of the mortgage. If you want to, most give you the option to make overpayments of a certain amount before you incur any fees.
Yes, you can potentially take it to another property, and if you don’t take it with you the loan will need to be repaid from the proceeds, meaning that whatever you sell the property for minus the mortgage amount is what you’ll get on completion.
The average age is about seventy-one and the interesting thing is that there is no minimum age requirement, however, it is dictated by lenders and for most lenders set the minimum age at about fifty-five.
The important thing to remember though, is that the younger you are, the less you’re going to be able to borrow and the older you are, the more you can borrow.
It’s typically more of a specialist lender that offers equity release. You won’t typically find that your high street lenders are offering it.
It depends on everyone’s circumstances, but from an interest rate and fees perspective, these tend to be higher than normal mortgages or retirement interest-only mortgages.
We’re really just here to make sure you understand if it’s the right thing for you or not and if there are any alternatives available.
A lifetime mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.
The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.
Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Lifetime Mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead. This is a referral service.
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