If you’re looking to free up some cash from your property, equity release might be an option for you. Read our guide to find out how equity release works and the various schemes available.
If you’re looking to free up some cash from your property, equity release might be an option for you. Read our guide to find out how equity release works and the various schemes available.
Equity release is a way of accessing the money tied up in your home without having to move. Equity release plans are aimed at older people and allow you to release a tax-free lump sum or a series of smaller sums which you can then use as you wish.
There are two main types of equity release.
Lifetime mortgages. These are the most popular type of equity release. Like a normal mortgage, they’re loans secured against your home. But with lifetime mortgages you can choose not to make any monthly repayments. Instead, the loan amount and any interest owed are repaid from the sale proceeds when the borrower (if there are two of you it’s the last survivor) dies or moves into long-term care. If you don’t make any repayments, the interest compounds meaning your debt grows very quickly. However, most products let you repay the interest (and even some capital) as you go.
Home reversion plans. With these schemes you sell all or part of your home to a reversion company. The amount you’ll get will be below market value. In return you receive a lump sum or regular payments and the right to continue living in your home. When the borrower (if there are two of you it’s the last survivor) dies or moves into long-term care, the property is sold and the proceeds are split between you (or your family) and the reversion company in the proportions you each own the property.
If you’re under 55, you won’t qualify for a lifetime mortgage or home reversion plan. But you could speak to a mortgage broker or financial adviser to find out if you can re-mortgage to release equity from your home.
You can use the money you unlock for whatever you like, such as:
With an equity release lifetime mortgage, you can generally release 20-60% of the value of your home. With home reversion, you can typically sell 25% to 100% of your home.
The amount you can personally release depends on your age and the property. It isn’t based on your current financial situation.
The older you are, the more you’ll be able to borrow. And medically enhanced equity release plans allow you to borrow more if you’re in ill-health.
The benefits of equity release can include:
The disadvantages of equity release can include:
Taking out equity release is a major financial decision - it can be expensive and impacts your future and your family’s inheritance.
Before you go down this route it’s a good idea to consider your other options first. These alternatives could include:
The equity release market is regulated by the Financial Conduct Authority.
Lifetime mortgages and home reversion products are regulated and the advisers selling them must have specialist equity release qualifications.
In addition, many equity release providers are members of the Equity Release Council and have signed up to a set of standards which offer you important protection. Make sure the provider you choose is a member.
It can be a good option for one person but not the next. It depends on your age, your financial situation and your plans.
It’s important you fully consider the pros and cons before going ahead. You might find it helpful to involve your family in the decision-making process. And you should consult a financial adviser specialising in equity release. Look for one that searches the whole market and is a member of the Equity Release Council. They’ll talk you through alternative options before helping you decide if you’re suitable for an equity release product.
If you’re considering equity release either on your own or with a partner you own the property with, the youngest borrower will typically need to be 55 or over for a lifetime mortgage or 60 or over for a home reversion plan.
You must own a property in the UK that is of a certain value, is in good condition and meets the lender’s criteria.
You may be able to get equity release even if you have an outstanding mortgage, but you’ll have to use the equity release funds to clear it.
There are some upfront costs to pay with equity release including valuation, arrangement, legal and financial advice fees.
For lifetime mortgages, you’ll pay a fixed or capped interest rate on the equity release loan. And there could be hefty early repayment charges in some situations.
The short answer is, yes. But if you want to transfer your equity release product to the new property, it must be approved by your provider. Properties in retirement complexes or those with non-standard construction may not be accepted.
If you downsize to a cheaper property, you may have to pay back some of the equity you released.
If you’re not able to transfer the product, you’ll have to use the sale proceeds to repay the equity release. This could leave you without enough money to buy another property.
The process usually takes between four and eight weeks, with home reversion plans usually taking longer than equity release mortgages.
There are advantages to waiting until you’re older to take out equity release. You’ll be able to borrow more, and you may get a better deal if you’re in poor health.
If you take out a lifetime mortgage when you’re younger, say 55, and don’t pay off the interest as you go, you could find there’s very little or no value left in your property to pass on to your family.
No. Your state pension is not affected as it is not means-tested.
No, providing you keep to the terms and conditions of the contract.
You could be refused if:
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