Equity release is a way of releasing capital tied up in your property without having to move home. Equity release products allow you to either borrow against the value of your home or sell all/part of it for a regular monthly income, a lump sum, or the facility to withdraw equity as and when you like.
Am I eligible for Equity Release?
All applicants over 55 years old.
A home owner.
What are the next steps?
If you are thinking about raising funds from your existing home, the first step is to find out how much your home is worth on the open market. Alternatively, if you plan to purchase a new home, speak to one of our team who can discuss how much you can borrow, before you put in an offer with an estate agent.
Will releasing capital from my home affect my state benefits?
Yes, it can have an impact on your state benefits, speak to one of our team who can look into this for you.
N.B. We are not experts in State Benefit entitlements and would recommend that you research your position, or seek independent advice, before proceeding with any Equity Release plan.
Can the money that I release from my home affect my tax position?
Any equity you release from your home is tax-free. Despite this, if you choose to invest the funds that you release, any interest you receive may be taxable and may affect your tax position.
Speak to your family
It is essential that you speak to your family about your thoughts towards and interest in equity release and a decision that you make to proceed, as necessary. Equity release could reduce any inheritance that you wish to leave to them.
N.B. Entering an equity release plan is your decision and you should not be pressurised by others, or by your family to make a decision. When you speak to our team, one of the questions that will be asked is whether you have already consulted with your family and how long you have been thinking about equity release.
I already have a mortgage on my home. Do I have to pay it off first?
No, but you will need to pay off the existing mortgage with either funds from the equity release plan or from other funds before the equity release mortgage commences.
Is equity release always a long term plan?
Generally, yes. However there are more flexible products available to allow you to make over-payments to reduce the amount that you owe without paying penalties to the lender and are designed to fit varying needs. We treat every equity release on an individual case by case basis because all of our clients are individuals and no two cases are the same.
Alternatives to Equity Release
Equity release schemes can be helpful, but they are not suitable for everyone. All alternatives should be considered:
- Selling your current home and buying a smaller home or moving in with family.
- Claiming any relevant State Benefits.
- Contacting your local council or other organisation to check if you could claim grants to pay for home repairs or improvements.
- Tracing any private pensions or investments of which you may have lost track.
- Using savings or selling investments.
- Help from family.
- Rent out a room.
- Re-structure finances.
- Continue working.
- Discuss your needs with your adviser and family before deciding which route is best.
What is a no negative equity guarantee?
All Equity Release Council approved products have a no negative equity guarantee, which means you’ll never owe more than the value of your home.
When you die or move into long-term care, your home will be sold and the money will be used to pay off the equity release loan; any surplus will go to your beneficiaries.
In the unlikely event that the value of your home has lowered significantly it would be possible that the value of your home no longer covers the value of the equity release loan, so the guarantee means there would be no money owing to the lender and your beneficiaries would not have to pay the cost of any shortfall whatever the future holds.
How will Equity Release benefit me?
For many home owners, owning a property means that you may have a significant sum tied up in your home, but at the same time, you may find you just don’t have enough income to enjoy the sort of retirement you had planned. Equity release can provide disposable income to allow you to enjoy a more comfortable retirement and maybe even fulfil some of your long-held dreams or ambitions.
Popular reasons for Equity Release
- Improving or maintaining your lifestyle.
- Clearing your mortgage.
- Financial help for a family member.
- Moving to a large property or a more expensive area.
- Home or garden improvements.
- Buying a new car.
- Paying off debts.
- For regular holidays and short breaks.
- Avoiding inheritance tax.
- Financial security and peace of mind.
Equity Release has attracted negative comments in the press, so it’s natural to ask: is Equity Release safe?
The regulation of these schemes gives borrowers greater recourse to compensation. They can turn to the Financial Ombudsman Service if they feel they have been mis-sold a product.
Safe Home Income Plans (SHIP) was an equity release trade body which worked hard to achieve respectability for the sector when it was set up in the 1990s: it re-launched in May 2012 as the Equity Release Council (ERC) with a voluntary code of practice. Lenders who are members of the ERC will offer borrowers guarantees such as right of tenure for life, a “no-negative equity” guarantee, and the right to move.
What are the costs involved in setting up an equity release scheme?
Costs can vary from provider to provider, here is a list of the general costs:
- An arrangement fee to cover the provider’s costs for setting up the scheme for you.
- A valuation fee to pay at time of application to be paid to the provider.
- Legal fees to pay to your Solicitor (we can also provide you with a quotation for a Solicitor who is on the provider’s panel and has experience with equity release).
- Buildings insurance: it will be a condition of the loan (like any mortgage) that the appropriate level of cover for your home is in place at the time of application and throughout the term of the loan.
- We charge a fee of £895 which is payable upon completion of your mortgage (we will also be paid commission by the lender). If you prefer a fee only option, we charge 4% of the loan amount, payable to us on completion; any commission paid to us by the lender will be forwarded to you.
We will notify you of all the fees, plus this will also be made clear on the Key Facts Illustration that your adviser gives to you before you sign any paperwork.
See what the UK Care Guide has to say about the pros and cons of Equity Release here.