Is equity release right for me?

If you are over 55 you may be considering your financial position and looking at ways to increase your income. An option for homeowners over 55 is equity release. This is where the cash tied up in your home is released, either as a lump sum or over a few smaller amounts.

Read on to learn more and find out whether equity release could work for you…

How does equity release work?

As a homeowner you are likely to have considerable equity tied up in your bricks and mortar. With an equity release mortgage or scheme, you can release this equity to use as you wish and continue to live in your home.

There are two equity release options to choose from:

• Lifetime mortgage

Through this option you can access the equity of your home while still retaining ownership. A percentage of the value of the property can be ring-fenced for your family to inherit when you die, and you can opt to make repayments should you wish.

In the event of your death, or if you enter long-term care, your property is sold and the loan amount, plus interest, is paid back to the lender.

• Home reversion

With this option you will receive either a lump sum or regular payments in return for selling part, or all of your property, to a home reversion provider.

You will be able to live in the property, rent free, until you die, and you can also ring-fence a percentage of the property which can be used as inheritance.

After your death, the property is sold, any ring-fence amount is distributed to beneficiaries and the home reversion provider gets the remainder.

How do I qualify for equity release?

To qualify for an equity release scheme, you will need to:

• Own your home.
• Be over 55 for a lifetime mortgage and over 65 for a home reversion scheme.
• Have no current mortgage or where a mortgage does exist, it must be small.

What are the benefits?

While not for everyone, for those that equity release is right for, the benefits include:

• With a lifetime mortgage funds are accessed while ownership is retained.
• With both lifetime mortgages and home reversion schemes, you can stay in your home until you die or go into long-term care.
• Joint equity release plans are available, providing both partners are eligible. This means that in the event of either person dying, the other will be able to remain in the property for the rest of their life.
• Many deals do not ask for repayments during your lifetime. Interest will be added to the loan and settled when you die or enter into long-term care.
• Interest rates are usually fixed, or if variable, capped for the duration of the loan.
• You can move home if you choose to. The new property must be accepted by your provider who will check that it is acceptable as a form of security for your loan.
• Lifetime mortgages have a ‘no negative equity guarantee’. This ensures that once the property is sold and everything is paid, should the amount left not cover the outstanding loan, your remaining estate will not have to fund the difference.
• If the value of your estate, (the assets you leave behind when you die), is reduced, this may impact inheritance tax. Seeking financial advice on this is recommended.

Any disadvantages?

• You will need to pay fees to secure the deal.
• Interest accrued will see the amount to be repaid grow.
• Income from equity release could impact your eligibility for means tested benefits.
• Your loved ones will not inherit the whole of your estate.
• If you breach the terms of your contract, for example, do not maintain the property as agreed, you could be forced to leave.
• You may live decades after your equity release; ask yourself, “will the money I release last that long?”
• If your lifetime mortgage is substantial, it could mean you do not have enough funds to move should you wish.
• If you do not choose a reputable provider, you may find your property is valued lower than its actual value.
• With people living longer, there is the potential for your lifetime mortgage to incur interest for many years.

If equity release is not for me, what are my options?

Equity release may not be the best option for you and it is always worth taking independent financial advice before you commit to anything. If you decide it is not a viable solution for your situation, but still wish to raise funds and make your home work harder for you, there are other options to explore, including:

• Depending on your age and circumstances, remortgaging your property in the usual way could be an option.
• Downsizing to a smaller property.
• Taking out an unsecured loan.
• Renting out a room in your home.

What does the law say about equity release?

There are legal rights in place designed to offer protection to homeowners who have opted for equity release. This includes the right to buy back your home should you choose to. A complicated process, buying back your property can be expensive thanks to accrued interest and early repayment charges. Seek professional advice before proceeding.

If you do decide to proceed, choose a provider who is a member of the Equity Release Council(ERC). As part of their membership, providers must follow the ERC’s code of conduct, which includes a promise to treat customers fairly and act with their best interests at heart.

Dealing with all aspects of moving and selling, at Smith Partnership Move we are experts in property, contact us on 0330 123 1229 for further information.