The most commonly asked questions with expert answers.
Equity release is a way of releasing the wealth tied up in your property without having to move to another home. You can either borrow against the value of your home or sell all or part of it in exchange for a lump sum or a regular monthly income. Some plans give you the option to “draw down” further equity (cash) at a later date, based on your requirements.
There are two main types of equity release: lifetime mortgages and home reversion plans. Both types of plan are regulated by the Financial Conduct Authority. By using an equity release product, a homeowner can draw a lump sum or regular smaller sums from the value of the home, while continuing to live in it.
A Lifetime Mortgage is a type of mortgage where you can choose to take your funds in a single lump sum or in smaller amounts over time up to the maximum limit agreed with the plan provider. You can also opt to retain some of the value of your property as an inheritance for your family, meaning that you can benefit from releasing equity while ensuring you have something to pass on to your beneficiaries.
You retain full ownership of your home and interest on the loan can be fixed or variable. The loan and the rolled up interest is repaid by your estate when you either die or move into permanent long-term care. If you are part of a couple, the repayment is not made until the last remaining person living in the home either dies or moves into permanent long-term care. In other words, both you and your partner are free to live in your home for the rest of your lives.
How much equity can be released is dependent on your age and the value of your property. Some providers may offer larger sums to those with certain past or present medical conditions, or even ‘lifestyle factors’ such as a smoking habit.
A home reversion plan could allow you to sell all or part of your home in exchange for a cash lump sum while retaining the right to remain in it, rent free. With Home Reversion, the provider will purchase all or a part percentage of your house. You know precisely what portion of your property you have parted with and, equally, what has been ring-fenced for later use, possibly to leave in a Will. The percentage you retain in your property will always remain the same regardless of the change in property values, unless you decide to take further cash releases. At the end of the plan your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.
Equity release plans are not right for everyone and it is important that you fully consider your options and receive independent equity release advice before making a decision. It is also important that, if you do decide to use an equity release product, you choose one that meets your needs.
Remember that taking an equity release plan is generally a long-term option. However, there are flexible plans available that may fit your varying needs and some will allow you to repay in the future, an early repayment charge may apply. At Harbour Equity Release we can help you to choose the plan that is right for you.
If you take a lifetime mortgage you will not have to give up ownership of your home. A lifetime mortgage is a loan secured against your property so you will always retain ownership until you either die or move into permanent long-term care, after which time your property will be sold to repay the loan plus any accrued interest.
If you want to pay some money back into your property you are able to do so under most plans. Most lifetime mortgages allow for a 10% voluntary repayments without you incurring any early repayment charges.
With some plans you can make monthly interest repayments, this way you can maintain the debt to the initial amount of the loan before interest. Lenders will need to check these payments are affordable to you. If you choose to make interest repayments, you still have the option to move to a roll up arrangement at a later date if you wish. There are even some lenders who can offer you the option to pay off some of the capital throughout the plan.
Before taking out an equity release plan, you should check what the alternatives are. You could visit moneyadviceservice.org.uk/debt for advice on debt. You may have other investments, savings or assets to draw on, or you may wish to continue some form of paid work.
You could downsize to a smaller property or one of lower value.
Downsizing may give you maximum value from your home, but you may decide that you do not want to leave your home or move away from family and friends, you should also consider the cost of moving. You may also want to think about renting a room in your home, or taking a loan from family and/ or friends.
At Harbour Equity Release we will discuss the alternative options available to you so you can decide whether any of these meet your requirements.
Yes, the role of the solicitor is to ensure you understand the long-term nature of an equity release contract and proceed with full knowledge of the risks and rewards, as well as the legal obligations of the plan.
Independent legal advice is one of the key features of the Equity Release Council’s Statement of Principles and is regarded as an essential aspect of consumer protection.
Taking equity release could result in your entitlement to means tested state benefits being reduced or removed. Local authorities and the government use your income and savings to decide if you qualify for means tested state benefits. If you release equity this can then be included as income or capital when your circumstances are tested for state benefits. Non-means tested benefits are not impacted.
The council represents the equity release sector and exists to promote high standards of conduct and practice in the provision of and advice on equity release which have consumer safeguards at its heart. Equity release council members are only allowed to tell you that a product meets the council’s standards if it meets all of the standards, these include:
• For lifetime mortgages, interest rates must be fixed or, if they are variable, there must be a “cap” (upper limit) which is fixed for the life of the loan.
• You must have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence and you abide by the terms and conditions of your contract.
• You have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan.
• The product must have a “no negative equity guarantee”. This means that when your property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more.
To find out how much you could release try out our free equity release calculator. You don’t need to provide contact details or speak to an advisor, just a few clicks and you’re done.
Equity release may involve a home reversion plan or a lifetime mortgage, which is secured against your property. To understand the features and risks, ask for a personalised illustration. Equity release requires paying off any existing mortgage. Any money released, plus accrued interest would be repaid upon death, or moving into long-term care.
