What Is Equity Release

Equity release is a popular financial product for many homeowners over the age of 55. It’s likely that you’ve heard something about equity release, and perhaps wondered whether it might be a viable option to suit your circumstances.

In this article, we’ll define exactly what equity release means, and what equity release options are available, along with related key information and considerations.

Those considering an equity release mortgage are advised to gain expert legal support, to ensure that their interests are safeguarded and that they understand their rights and responsibilities.

If you are looking to discuss equity release today, please get in touch with our expert equity release solicitors at Chattertons.

WHAT IS EQUITY RELEASE?

Equity release refers to a type of financial product that permits homeowners, generally those 55 and over, to release the equity value in their property, tax-free, and without having to move out.

The equity value is the difference between the property’s market value, and the property’s current value, and any remaining mortgage or debts secured against the property.

Equity release is becoming an increasingly popular way for people in or approaching retirement to enhance their finances and complement their pensions.

WHAT ARE THE EQUITY RELEASE OPTIONS AVAILABLE?

There are two key types of equity release mortgages, known as ‘lifetime mortgages’ and ‘home reversions’.

WHAT IS A LIFETIME MORTGAGE?

A lifetime mortgage means that an individual takes out a mortgage on the property, and the loan accrues interest. The homeowner retains ownership, and the loan is repaid, along with the accrued interest, once the homeowner passes away, or moves out into a long-term care home.

These types of mortgages do not require the property owner to pay monthly repayments, though some mortgages will give homeowners the option to, as opposed to letting the interest roll up.

Not all lifetime mortgages deal with interest in the same way, for instance, certain mortgages apply interest to the loan, while other mortgage types permit property owners to make interest payments.

WHAT IS A HOME REVERSION?

A home reversion plan allows a homeowner to access all or part of the value of their home while retaining the right to live there.

With home reversion products, the provider will purchase all or part of your home, providing you with a tax-free cash lump sum, or regular payments, based on a person’s age and health. As part of this product, the homeowner will receive a lifetime lease, meaning that they have the right to remain in their home, for the rest of their life, without paying rent.

Once the homeowner passes away, and the property is consequently sold, the home reversion provider then is paid the appropriate share of the sale.

If you are unsure as to which option might suit your circumstances, we can provide equity release advice, tailored to your situation.

HOW DO I KNOW IF I QUALIFY FOR EQUITY RELEASE?

To qualify you must be over 55, and own a property over £70,000.

To discuss your equity release mortgage options today, please get in touch with our equity advice solicitors at Chattertons.

HOW MUCH EQUITY CAN BE RELEASED FROM A PROPERTY?

Equity release mortgages depend on a person’s age, as well as the age of their partner, and the value of their home. Equity release plans can be accessed once an individual turns 55, at which time that homeowner can release up to 23.5% of the value of their home.

The percentage of equity that a person can release on their home increases as they age, (by roughly 1% a year). The maximum amount of equity that a person can release on a property is around 55%.

Certain health matters may also affect the amount of equity that you can access, meaning that people with specific medical conditions are eligible for larger amounts of equity.

If you are confused about your equity options or require advice on equity release, please contact our specialists at Chattertons.

WHAT ARE THE ADVANTAGES OF EQUITY RELEASE?

There are plenty of different advantages of equity release, including:

• The money you release from your home is currently tax free.
• If you choose a lifetime mortgage, you are not required to make monthly repayments.
• The money can boost your income in retirement.
• You can remain living in your property, while also being able to access its financial value.
• You can use the funds to cover any short-term or long-term health care you might need.
• You can carry out home improvements.
• You can give the money to your children/grandchildren.
• You can put the money towards leisurely activities, whether that’s dream holidays, travelling, or any other goals you might have.
• 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 pass away or move into long-term care.

If you are keen to access the advantages of equity release and require guidance based on your specific situation, our equity release advisers can help.

WHAT ARE THE DISADVANTAGES OF EQUITY RELEASE?

Although there are many benefits to equity release, there are a few potential disadvantages that it is worth being aware of:

• There will be less money available for your potential beneficiaries.
• Releasing money via equity release may impact 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 to be more expensive in the long term than downsizing to a cheaper property.

WHAT ARE THE COSTS INVOLVED IN EQUITY RELEASE?

The costs involved vary depending 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.

WHEN DO I REPAY THE EQUITY RELEASE DEBT?

There are two main types of equity release schemes: home reversion schemes and lifetime mortgages. The most common is the latter. These are a special type of mortgage, with a rate of interest which is fixed for life. Interest rolls up until the capital is repaid, either on death, on moving into long-term care, or on the sale of the property so there are no monthly payments to make. Some schemes do allow interest-only payments to be made if that is more suitable to your circumstances.

We appreciate that clients may have questions and concerns about equity release, including the different options available, and equity release debt. Our equity release solicitors at Chatterton’s can provide the information you need, and address your concerns.

WILL MY FAMILY INHERIT MY EQUITY RELEASE DEBT?

No – all common lifetime mortgages on the market today have a no negative equity guarantee, meaning you will never owe more than the property is worth.

WILL I STILL OWN MY PROPERTY?

Yes. One of the most common misconceptions about equity release is that you will not own your property – with a lifetime mortgage you will. They work very much the same as a standard mortgage in this respect. It is a loan secured against your property, giving you access to a lump sum of cash, and you will still own your home.

Get in touch 

To set up a meeting with a specialist member of our team, please get in touch with your local branch or fill in our online enquiry form and we will be in touch shortly. We have local branches across Lincolnshire, Nottinghamshire, and London in Boston, Bourne, Grantham, Horncastle, Lincoln, London, Newark, Sleaford, Spalding, and Stamford.

To understand the features and risks, please ask for a personalised illustration. Equity released from your home will be secured against it. Your home may be repossessed if you do not keep up repayments on your mortgage.