A means to release money from your property without having to move or sell your house.

Equity release allows you to release money from your property without having to move or sell your house. There is a no negative equity guarantee which means you and your family will never owe more than the value of your home. There are two types of equity release: Lifetime Mortgage and Home Reversion.

Lifetime mortgages

You take out a mortgage secured on your property provided it is your main residence, while retaining ownership. You can choose to ring-fence some of the value of your property as an inheritance for your family. You can choose to make repayments or let the interest roll-up. The loan amount and any accrued interest is paid back when you die or when you move into long-term care.

Interest rates must be fixed (or capped with an upper limit) for the life of the loan so there are no nasty surprises.

Lifetime mortgages are the most popular form of equity release, often using the option to roll-up the interest so there are no monthly payments to make. However, if your concern is keeping the overall cost down then there are products that allow you to make payments. The amount you can pay might be based on your income so providers will have to check you can afford these payments. Assuming payments are maintained, then you should be able to maintain a legacy for your beneficiaries.

With some products you can withdraw the equity in small amounts as and when you need it. This can be cheaper than taking a lump sum upfront as you only pay interest on the amount you’ve withdrawn.

You retain ownership of the property and if it increases in value, then you can still benefit from that.

Lifetime mortgages are generally available from the age of 55. You can normally borrow up to 60% of the value of your property but exactly how much can be released is dependent on your age, the value of your property, your health (some lenders offer larger sums to those with certain lifestyles or health conditions), the amount of any outstanding mortgage or debt you have.

Home reversion plans

You sell your home, or a percentage of it to a home reversion provider in return for a discounted lump sum or regular payments. You have the right to continue living in the property until you die, rent free, but you have to agree to maintain and insure it. You can ring-fence a percentage of your property for later use, possibly for inheritance. The percentage you retain will always remain the same regardless of the change in property values, unless you decide to take further cash releases, and you can benefit from increased house price on the percentage of the property you own. At the end of the plan your property is sold and the proceeds shared according to the remaining proportions of ownership.

You will not get the full market value of your home. Rather than being charged interest by the provider, as with a lifetime mortgage, they are simply buying some or all of your home at a discount in exchange for letting you live there rent free until your eventual death or you go into care.  The percentage of the market value you will receive depends on how long the provider thinks you will continue to live there so the older you are when you take out the plan, the more they are likely to pay you, although it can still vary from one provider to another. These schemes tend to release more capital from the property than is possible through a lifetime mortgage. Most plans are available from the age of 60 or 65.

Some disadvantages of lifetime mortgages:

  • If you opt for the type of product where you do not have monthly payments to make but debt continues to roll up then, particularly over longer periods of time, it can be increasingly expensive to your estate.
  • If you opt for the interest only lifetime mortgage then you will have to make monthly interest payments for an agreed period or the rest of your life, impacting upon your monthly budget. In addition, you may have to review the affordability on the death of your partner or spouse.
  • Your entitlement to certain state benefits or grants may be affected.

Some disadvantages of home reversion plans:

  • The amount of capital is likely to be substantially less than the true market value of the share of the property given up.
  • You no longer own all of your own home, and only benefit from increased property value on the percentage you still own.
  • If you sell 100% of your property the provider will be the one to benefit from any future growth in your property value and you will be unable to raise further funds in the future.
  • Home reversions are generally less flexible than lifetime mortgages as it can be difficult to end the plan and buy back the percentage you sold.
  • You have no true way of ascertaining whether the value being offered is fair.
  • Your entitlement to certain state benefits or grants may be affected.

This is a lifetime mortgage or home reversion plan. To understand the features and risks, please ask for a personalised illustration.

Free equity release


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