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Author: John Whyte

Lifetime Mortgage: Why it is important to involve your family in the decision

Posted on by John Whyte

Equity release may be an attractive financial proposition for many homeowners who wish to tap into the value of their property without having to move out. But before you sign on the dotted line to raise cash in your later years through equity release, please make sure you consider this huge financial decision within the context of your family. Decisions taken by you now will have an impact on your immediate family, which is why it is so important to involve your loved ones in the process.

What is a lifetime mortgage?

The most popular type of equity release plan is a lifetime mortgage. It is different to a regular mortgage in several respects, as is explained in a recent blog post here, and you need to be aged 55+ to be eligible.

As the name suggests, this is a mortgage that is redeemed at the end of your life (or when you move into long-term care). The loan is secured on your main residence while you retain ownership and carry on living there.

You have the option of ringfencing some of the value of the property as an inheritance for your family, and you can also choose to make regular repayments on the mortgage, or simply let the interest roll up. When you pass away, the loan and any accrued interest is redeemed. Since a lifetime mortgage affects the value of your estate after your death, it means there will be less to leave to your loved ones.

Why your family may have concerns

It is perfectly reasonable for your family to be sceptical of equity release. After all, they only want what’s best for you and you can’t blame them for wanting to protect you from being taken advantage of. It is also the case that equity release had a dubious reputation back in the 1980s which, thankfully, has now been put to rest. It is now a reputable financial strategy for older people with a property asset.

Importantly, the Equity Release Council was established in 1991 as the industry body for the UK equity release sector, and its members abide by Council rules. It “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).

Another valid concern that your relatives may have is that taking out a lifetime mortgage will reduce the amount of their inheritance they would otherwise receive, since the mortgage is repaid through the proceeds of the sale of your property. However, you could use your tax-free lump sum obtained through equity release to help your family financially while you are still very much alive. Whether you gift a lump sum, help to pay the school fees or to get on the property ladder, they may not be missing out after all.

Explain your reasons for considering equity release

If you believe that a lifetime mortgage is the right choice for you, your family should know your reasons. Honesty and transparency are always the best policy, especially within the family. What are you hoping to achieve by releasing some of the equity tied up in your home? Are you looking to boost your retirement income or to go on a holiday of a lifetime? Perhaps you would like to pay off your existing mortgage, invest in a new kitchen or other home improvements? There is no reason why you should not use your wealth to make your retirement more comfortable.

Other motivations might be to pass a lump sum onto your family by way of a ‘living inheritance’, helping out financially when they need it most. From going to university to getting married and buying a first home – these are all expensive undertakings that parents and grandparents may wish to support. Talk to your family about their immediate needs and decide together on how you can best make a financial contribution.

What are the benefits of equity release?

It is unlikely that other members of your family will have done as much research into equity release as you have, which makes it your job in explaining to them the advantages of taking out a lifetime mortgage. These include

  • Receiving a tax-free lump sum to enable you to lead a comfortable life in your old age
  • Obtaining capital to help out family members financially and/or to spend on home improvements
  • The ability to carry on living in your home until you go into long-term care or pass away
  • Fixed interest rates, so you know exactly where you are financially without having to worry about market fluctuations
  • The option to make monthly repayments in order to reduce the final loan repayment due after your death
  • A ‘no negative equity’ guarantee which means you will never owe more than your house will sell for.

As with any financial decision, it is prudent to weigh up the pros and cons before making a commitment. Equity release is not the right choice for everyone, so it is important to show your family that you have thought long and hard about lifetime mortgages before reaching a positive conclusion.

Potential downsides to discuss may include:

Would you be able to move home with a lifetime mortgage? (The answer is yes, you can.)

How does equity release affect your inheritance? (It enables you to share your wealth while you’re alive.)

Will taking a tax-free lump sum affect your other benefits? (You could draw down in instalments instead.)

Speak to an equity release specialist together

Taking out a lifetime mortgage is a big step. Not only does it need to be the right decision for everyone concerned, but you need solid expert advice from an experienced equity release specialist. I have been working in financial services for well over 20 years, and as a specialist equity release broker I am a proud member of the Equity Release Council.

Based on my deep insight into the marketplace, I can help you choose the best lifetime mortgage for your needs. Including your family members in your equity release decision is the best way to ensure that your requirements are met perfectly. Please feel free to get in touch to ask any questions you or your family may have and ask for a personalised illustration.

How does equity release affect your inheritance?

Posted on by John Whyte

If you are considering equity release as a long-term financial vehicle to unlock the cash tied up in your property, you will probably already have plans on how to use the funds.

Whether you take out a lifetime mortgage , equity release enables you to free up some of the value tied up in your home and release it back to you as cash, either as a lump sum or as several cash payments.

You can use the money for whatever you wish – to boost your retirement income, carry out home improvements, go on a once-in-a-lifetime holiday, help your children get onto the property ladder, pay school fees for the grandchildren… the list is endless.

What happens to your equity release plan upon death?

When you die, your home will typically be sold by the executors of your estate, and some of the proceeds will be used to pay back the equity release plan.

Lifetime mortgages are the most popular form of equity release and they will have to be paid off upon death – either via the sale of the property or with other available funds. Your net estate will then be distributed to the beneficiaries named in your Will. If the beneficiaries choose to keep the property as an investment, they could pay back the lender with a buy-to-let mortgage.

What is a protected equity guarantee?

Taking out an equity release plan may lower the amount of your inheritance, and many people are concerned that there may not be a lot left to leave to your beneficiaries. One way to protect some of the value of your home to make sure that your family will definitely inherit a portion of it is to obtain a protected equity guarantee, also known as an inheritance protection guarantee.

Building this option into your lifetime mortgage allows you to ringfence a percentage of the property’s value. However, do bear in mind that the larger the amount is that you wish to protect, the lower the amount that you can release from your home. In other words, if you choose to protect 20%, the maximum amount you can obtain under an equity release plan will also be 20% lower.

How does equity release affect inheritance tax (IHT)?

When you release equity from your property, you reduce the value of your estate. This will most likely reduce the amount of inheritance tax payable on your death. In some cases, this could take the value of the estate below the IHT threshold of £325,000.

You should also bear in mind that your main residence has an additional IHT allowance, currently £175,000 per person, that can be added to the £325,000 nil band. This means that a couple can potentially leave a family home worth up to £1 million before any IHT becomes payable.

That said, the extra nil band does not apply to the equity released from the home if you have not actually spent the money. In that case, it would remain part of your estate and might become subject to IHT in due course.

Can you use equity release for gifting?

Subject to careful planning, you can gift some or all of the equity release funds as a Potentially Exempt Transfer. If you live for more than 7 years after making the gift, the money will be IHT exempt. However, if you pass away within 7 years, the amount will be counted as part of your estate and will be subject to IHT.

If you gift money from equity release and you pass away within 3 years, the gift will be charged at the full 40% IHT tax rate. If you die within 3-7 years of the gift being made, a sliding scale ‘taper relief’ will be applied, meaning the more time passes between the date of the gift and the date of death, the less tax will be payable.

What to do next?

If you are thinking about taking out an equity release plan and are worried about the impact on your future inheritance, the most sensible thing to do is to speak to an equity release specialist. Give me a call on 01903 890660 or contact me here so I can answer any questions you may have and help you choose the most suitable equity release plan for your personal circumstances.

What does the temporary update to the Equity Release Council legal advice rules mean?

Posted on by John Whyte

The COVID-19 pandemic and resulting lockdown has created a number of challenges for financial advisers. It has typically been a requirement that customers must be provided with face-to-face advice – but due to lockdown regulations and social distancing requirements, this is currently not possible.

This has led to the Equity Release Council publishing a temporary modification to its rules following a consultation process with its members and the industry as a whole. The modification is designed to allow equity release specialists and financial advisers to provide advice with appropriate product safeguards, whilst also doing everything possible to protect the health and wellbeing both of the customers and their advisers.

Advice can be provided remotely

The major change to the Equity Release Council’s rules is that it will now temporarily be possible to provide advice without a face-to-face meeting in person. Advisers will be permitted to provide their services remotely.

To ensure this is carried out both effective and safely, there must be a number of mandatory contact points between the adviser and customer before any commitment is made to take out an equity release plan.

The new rules set out that customers must receive a combination of written advice, and telephone or video calls – and this actually increases the number of interactions between consumers and advisers.

It is important that advisers able to continue to fulfil their duties to consumers – crucially in that they must fully establish the identity of the individual, ensure that they have the mental capacity to enter into an equity release product contract, make sure that the client is under any kind of coercion or duress, and where there is more than one party, ensure that both agree to the contact.

A temporary change

It is important to note here that this is a temporary revision that is only in effect for as long as the government directs the public to stay at home in order to contain the COVID-19 pandemic. When people are allowed to go about their lives as normal, it is expected that the revision to the rules will be changed back.

During this time, the mandatory physical witnessing of a client’s signature must be carried out by an independent witness chosen by the client. This process will be subject to identity checks and due diligence.

Need further details?

If you would like further information about taking out an equity release policy during the COVID-19 pandemic, please get in contact with John Whyte today. We can provide you with any information that you require, and provide independent unbiased advice on potential options for you.

How equity release for pensioners could boost retirement income

Posted on by John Whyte

The market for equity release is growing – the market is now in excess of £3bn in excess of £3bn and the concept has a much larger profile than ever before. It is a financial option that can provide some much-needed flexibility to homeowners over the age of 55. And part of the reason that it has become so popular is that it provides a number of different options.

Some homeowners choose equity release to fund upgrades and alterations to their property or to pay for a lease extension. Others utilise the money for inheritance tax planning or family gifting. But one of the most useful ways it can be used is to increase income in retirement.

How does equity release work?

Equity release is a relatively recent innovation and it is used to make different use of the money tied up in a property. It allows you to release cash either as a lump sum, as smaller, regular payments, or as a combination of these.

It can be a fantastic way to allow flexibility, although of course you need to ensure that you are getting the product that is right for you. Typically, you will not need to have paid off your whole mortgage in order to release equity.

Boosting your retirement income with equity release

Equity release can be one of the easiest and most effective ways to increase your retirement income. You can choose an equity release product that is right for you, and this might offer the option of ongoing monthly payments until you pass away.

However, it is vital to take impartial advice from an expert in equity release options to ensure you are choosing the product that is right for you, both now and in the future. The most common form of equity release to boost income is a lifetime mortgage.

How long does the income last?

In general, an equity release provides income over a fixed term – this is often between 10 and 25 years. The level of income depends on the amount you choose to release and the length of the term.

Debit interest is only accrued on money that has actually been released, which can be very beneficial. Of course, you may prefer the idea of taking out a lump sum in order to have full access to the money as you need it.

Speak with an expert

If you are interested in the possibility of equity release you should get in touch with an experienced equity release broker. At John Whyte, we offer independent, personalised advice for clients considering equity release. Get in contact with us today for more information.

How can I release money from my house?

Posted on by John Whyte

For residential property owners in the UK, your home is most likely to be probably your largest asset. Whether or not the mortgage is paid off, an increasing number of people are choosing to release money from their property, meaning they get the benefit of the extra cash without having to sell their home.

In order to qualify for equity release, you need to be 55+ years old, so you will either be approaching retirement or have already stopped working.

How much equity can I release?

The amount of equity in your home is calculated by taking a current market valuation of the property and deducting any outstanding loans you have against it. For instance, if the property is valued at £500,000 but there is £100,000 of mortgage still to pay off, then the equity in your house would be £400,000.

The amount of equity you are able to release depends on the above calculation as well as your age and often your health too. If you are 55 years or older, you could release up to 50% of the property value – £200,000 in the above example.

That said, every personal situation is different and it’s essential to get professional advice from a qualified expert before you go ahead with any equity release scheme. John Whyte is an equity release specialist with many years’ professional experience as a mortgage adviser, personal insurance broker and Independent Financial Adviser.

Make an appointment to talk through your options to ensure equity release is the right solution for you, and to compare the market to find the best schemes based on your personal circumstances. To start with, why not use this form to find out how much you could release from your home?

So, what is equity release and how does it work?

Broadly speaking, there are three different types of equity release plans:

A Lifetime Mortgage allows you to borrow money against your home while you live there. You will have the option to pay some, all or none of the monthly interest. When your home is sold (i.e. you move into long-term care or you pass away), the mortgage will be redeemed.

 A Home Reversion Plan allows you to sell all or part of your home in return for a lump sum or regular payments. You can live in your home rent free for the rest of your life though it will be your responsibility to maintain and insure the property. When it is sold, the proceeds are shared according to the remaining proportions of ownership.

A Later Life Mortgage is a conventional mortgage that is suitable for older home owners up to the age of 80+ who have suitable income sources (employment, self-employment, pensions, investment or rental income) to satisfy mortgage lenders’ affordability criteria.

It is important to understand the features and risks involved with each type of financial plan. At John Whyte Equity Release, we will draw up a personalised illustration to outline those features and risks that are relevant to your individual situation and equity release plan, to enable you to make the right decision.

What can I use the money from my house for?

Equity release can be used for a huge variety of purposes. In fact, you can choose exactly how you wish to use the money. While some people use the funds to treat themselves to a car or luxury holiday, the majority of home owners release equity to pay for home improvements such as a new kitchen or bathroom, perhaps adapting it to make life easier through old age.

Others gift the money to their children or grandchildren, perhaps to pay school or university fees, or to help the next generation to get a foot on the property ladder.

Alternatively, you can draw down the money as income to make life that bit easier financially, perhaps supplementing other retirement income, managing debt or repaying a mortgage, or paying for long-term care.

Will there be anything left to leave my family?

Equity release is a big decision and needs to be well considered before you decide to go ahead. We all know that the value of residential property can go up as well as down. That said, it’s worth pointing out that Lifetime Mortgages come with a guarantee that the outstanding amount won’t ever be more than the value of your home, thus eliminating the risk of negative equity.

If you release equity from your home, it goes without saying that the overall value of your estate will decrease, and that this will affect the amount of inheritance you can leave. What’s more, if you are not paying interest, the costs can increase the amount of the mortgage very quickly and your borrowing will be higher.

One of the biggest concerns people have is that there will be no equity left to leave as inheritance by the time they pass away, since they fear that the capital will have been eaten up by mounting interest charges. This is a tricky one since no-one can predict how long we live and what happens to house prices during that period.

Finally, equity release can affect your tax position, meaning you may no longer be entitled to means-tested benefits such as income support or universal credit.

If, upon reflection, you decide that equity release is not suitable for your situation, there may be alternative options you can consider such as

  • Downsizing to a smaller property
  • Using existing savings and investments
  • Obtaining home improvement grants
  • Ensuring all available benefits are claimed

Contact John Whyte for expert equity release advice and guidance

Equity release is fast becoming a popular and sensible financial planning tool for many home owners. Did you know that in the first 6 months of last year, UK home owners released an incredible £1.7 billion from their properties?

If you are considering doing the same, it is highly recommended that you seek professional advice before you sign on the dotted line. John Whyte is your friendly, independent equity release broker operating in Sussex and throughout the South East. For an initial free, no obligation discussion or meeting, please get in touch.

Equity Release FAQs

Posted on by John Whyte

Find answers to the most commonly asked questions about equity release in our blog here. If you can’t find the answer to your question below, or if you need any further information contact us.

What is equity release?

Equity release allows certain homeowners to access the equity (cash) tied up in their property.

What is the difference between equity release, a lifetime mortgage and home reversion?

Equity release is the generic term for accessing cash tied up in your home. There are two types of equity release, either a lifetime mortgage or a home reversion plan.

Lifetime mortgages are the most popular form of equity release. They are a form of mortgage that extends over your whole lifetime (not a fixed term like normal mortgages). In the past, there were no repayments with lifetime mortgages, with the loan and interest being repaid in full when your home is eventually sold (either when you die or go into full-time care). More recently, some lifetime mortgages allow repayments, enabling you to control the final balance that will be deducted from the eventual sale of your home.

With a home reversion plan you sell all or part of your property in return for a cash lump sum or a regular monthly income (or both). You receive a lifetime tenancy to remain in your property until you die or go into full-time care. There is usually no rent to pay and you carry on living in your home just like it is your own (you have to continue to maintain and insure it).

Is equity release right for me?

While equity release schemes can be a sensible and practical solution for financing lifestyle, home improvements, education or general income, it’s not the right solution for everybody. It can impact the amount of inheritance you leave for your family. It is a big step so it is important to seek expert advice.

However, if you are cash poor, but asset rich (with lots of money tied up in your home), equity release could be a good way for you to get your hands on some of your cash.

When can I get equity release?

You can only get equity release if you own your own home and you are over the age of 55 for lifetime mortgages and over 60 for home reversion plans.

How much equity release can I borrow?

The maximum percentage you can usually borrow is 60 per cent of the value of your property. How much you can take out will also depend on your age, the value of your property and if you have any past or present medical conditions, in which case some providers will offer larger sums.

What can I use equity release for?

You can use the cash you release from your property through an equity release scheme in virtually any way you want. The most common uses of equity release are:

  • To repay an interest only mortgage left on the property or enable affordability of switching to capital repayments
  • To fund the education of children or grandchildren
  • Home improvements
  • New car
  • Family holidays
  • Improved lifestyle
  • Increased monthly income

How is equity release paid back?

Equity release is paid back from the sale of your property when either:

  • the borrower dies (or on death of the second borrower if a joint lifetime mortgage)
  • the borrower moves into permanent long-term care (or the second borrower moves into long term care if a joint lifetime mortgage)

Can equity release be used to pay for care?

If you are over 60 and a homeowner you can take out a lifetime mortgage on your existing property to pay for long-term care. For a home reversion plan you will need to be over 65 and own your own home. In all cases it is important to seek specialist financial advice to ascertain what is involved, and the options and alternatives available to you. Equity release may affect the benefits you are entitled to.

Should I speak to my family about equity release?

Equity release is a big decision and could have ramifications for future generations down the line, so it is a good idea to talk openly with family about your financial decisions.

Do I need financial advice?

Yes. To take out any type of equity release, you must speak to a suitably qualified financial adviser. John Whyte is a fully qualified and accredited independent financial adviser who specialises in equity release. Call now for a free, no obligation chat.

Equity release and how it affects your family

Posted on by John Whyte

Making a huge life-changing financial decision such as equity release requires a lot of thought. Your decision to release equity from your property not only affects your life but the lives of your family too. It is important, then, to understand exactly how your equity release will change issues surrounding inheritance, the family home and your living situation as you get older.

Here we take a look at equity release, and how taking this financial decision can affect you and your family.

Involve your family in your decision

Of course, financial matters such as equity release are ultimately your decision to make – but that doesn’t mean that it needs to be a decision that you make alone. When you discuss your options with an independent financial advisor, they may recommend that you should talk through the possibilities with your family.

It may even be beneficial to have your family in meetings with your financial advisor to go over the range of options available. This not only helps you to get other perspectives on your decision, it can also help to avoid any shocks and surprises on your family’s part. It can also help that your family understands the whole process of the equity release.

Additionally, you may be surprised that your family may be able to provide or suggest alternatives to equity release, such as borrowing from them.

Your living situation

The family that you live with can also affect equity release. If you are married, in a civil partnership, or living with a partner, you will be eligible to take out a joint equity release plan (as long as you are eligible by age). A joint plan ensures that if one of you passes away or needs to go into long-term care, the other partner can still remain in the property.

If your partner is not in the plan and you pass away, the property would then have to be sold – unless the mortgage can be repaid in full. This would force your partner to find somewhere else to live.

Inheriting money

When considering equity release, it is common for individuals to wonder whether they can still leave an inheritance for their children and loved ones. The answer to this question is yes, but it should be noted that releasing equity from your property naturally decreases the value of your estate and the amount you have to leave.

You should speak to your advisor about the possibilities surrounding protecting elements of equity as an inheritance. Many leading equity release providers do have options that you could consider.

Releasing equity to help a family member

One very common reason that people release equity from their property is in order to financially help their family. A lot of money can be tied up in a property, and equity release can allow you to gift some of that money to your family – effectively a living inheritance.

There are many reasons that you might choose to do this, for example you might wish to pay for a grandchild’s education, or to help a family member with a deposit for their first home.

No need to sell the family home

It is also very common for individuals to not want to give up living in their family home. Your property can mean a lot more to you than simply a roof over your head – it’s where your family grew up. Equity release gives you the option to access some of the money that is tied up in your property, without you having to sell it.

If you are interested in speaking to an independent financial advisor please don’t hesitate to contact John Whyte today.

Using equity release to pay off an interest-only mortgage

Posted on by John Whyte

If you are a homeowner without sufficient savings to pay off an interest-only mortgage, you may want to consider equity release as an option. In this blog I’ll be explaining what an interest-only mortgage is, what the options are when your interest-only mortgage comes to the end of its term, and the benefits of using equity release to pay off an interest-only mortgage.

What is an interest-only mortgage?

An interest-only mortgage is when you only repay the interest on the loan each month, not any of the actual capital borrowed. It means that you are expected to repay the original capital borrowed at the end of the term. Many people opt for an interest-only repayment mortgage to make mortgage repayments more affordable, but don’t plan ahead and save to repay the loan.

Nowadays it is more difficult to get an interest-only mortgage, but ahead of the 2008 financial crisis, many customers were able to borrow on an interest-only basis without any proof of how they would repay the capital loan.

According to the Financial Conduct Authority (FCA), nearly 1 in 5 mortgage customers have an interest-only mortgage. In fact, nearly a million people in the UK have interest-only mortgages without any plan on how to repay the capital.

What happens when your interest-only mortgage comes to the end of its term?

When an interest-only mortgage comes to the end of its term, the capital needs to be repaid. This can be achieved with savings, by selling up, downsizing, extending your mortgage with your existing lender, remortgaging with a different lender, or repaying the capital with an equity release plan. Be aware that if you decide to repay in part, there may be a charge to do so.

Why consider equity release?

The main benefit of equity release and the reason many people turn to these schemes as a means to repay an interest-only mortgage is that many equity release schemes do not require proof of income or affordability.

With the most common type of equity release (a lifetime mortgage), a loan is approved against the property and used to repay the existing interest-only mortgage. Find out more about how equity release works in our previous blog here.

What are the benefits of equity release?

Here are some of the benefits of using equity release to pay off an interest-only mortgage.

  • You get to stay in your existing home
  • Your outgoings will be reduced
  • You’ll have no more worry about letters from your mortgage lender asking about repayment
  • There is flexibility around repayments – you can make regular payments on a suitable plan if you wish, or make no payments at all and allow interest to roll-up
  •  Any money released from your home using equity release is tax free
  • The no-negative equity guarantee (offered by all Equity Release Council approved schemes) means that any debt you create with equity release, plus added interest, will never be more than the value of your home when you die or go into long-term care.

Equity release isn’t suitable for everyone. If you would like to know more about equity release, call John Whyte on 01903 890 660 for an initial free discussion on suitability. You may also like to read our previous blog on 4 common questions about equity release here.

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