EQUITY RELEASE FACTSHEET

WHAT IS EQUITY RELEASE?

Equity release allows individuals aged 55 and over to release money from the property they live in without having to make any monthly repayments. There are two types of equity release; Lifetime Mortgages and Home Reversion plans. Both of these are regulated by the Financial Conduct Authority. By using an equity release product, a home owner can draw a lump sum or regular smaller sums, while remaining in their home.

WHAT ARE THE OPTIONS AVAILABLE?

There are two main types of scheme. These are called ‘lifetime mortgages’ and ‘home reversions’.

WHAT IS A LIFETIME MORTGAGE?

A Lifetime mortgage involves taking a type of mortgage which does not require monthly repayments, although with some plans rather than roll up the interest you can opt to make monthly repayments if you wish.  You retain ownership of your home and interest on the loan is rolled up (compounded). The loan and the rolled up interest is repaid by your estate when you either die or move into long term care.

WHAT IS A HOME REVERSION?

A Home Reversion Plan also allows you to access all or part of the value of your home while retaining the right to live there, rent free, for the rest of your life.  With a Home Reversion product the provider will purchase all or part of your home taking into account your age and health and will provide you with a tax free cash lump sum (or regular payments) and a lifetime lease, guaranteeing you the right to stay in your home rent-free for the rest of your life.

HOW MUCH CAN BE RELEASED?

The provider will instruct a surveyor to give a professional valuation of your property that will define the amount that can be released. The maximum amount is dependent on your age and that of your partner (if you are making a joint application) and the value of your property. Some providers may offer larger sums to those with certain medical conditions.

WHAT ARE THE ADVANTAGES?

• The money you release from your home is currently tax free.
• The money can boost your income in retirement.
• You can carry out home improvements.
• You can give the money to your children/grandchildren.
• You can go on that dream holiday.
• You can pay off any debts you may have.
• You can potentially reduce your inheritance tax liability.
• The monies you release plus any interest owing will only need to be paid back when you die or go into move into long term care.

WHAT ARE THE DISADVANTAGES?

• There will be less money available for your potential beneficiaries.
• Releasing money via equity release may impact on any means-tested benefits you may receive or may be entitled to.
• There might be early repayment charges if you change your mind and wish to pay off the plan.
• Equity release may work out more expensive in the long term than downsizing to a cheaper property.

WHAT ARE THE COSTS INVOLVED?

The costs involved vary dependant on the provider that is chosen. The typical costs include:

• Valuation fees, however some products offer a free valuation.
• Arrangement fees to cover administration fees although these are usually added to the loan or deducted on completion.
• Solicitors fees to cover the legal work.
• Financial Adviser fees although these can be offset by any commission the product pays.

HOW DO I QUALIFY?

• The minimum age you must be is 55. There is no maximum age.
• You must own your home.
• If there is any outstanding mortgage it must be paid off in full either from the equity that is released or from other funds.
• There is a minimum amount you must borrow, usually £10,000, but this varies dependent on the provider.
• Providers will generally not accept properties which are valued at less than £70,000.
• You must have buildings and contents insurance in place on your property by the time the equity is to be released.  

CONTACT US

If you want to find out more, please do not hesitate to get in touch with our team for expert, personalised advice on this area.