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Author: John Whyte
How equity release for pensioners could boost retirement income
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?
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
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
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
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.
What is a lifetime mortgage?
A lifetime mortgage is a type of loan secured against your property. It is one way of boosting income in later life. Unlike a conventional mortgage, which runs for a fixed term; lifetime mortgages, as the name suggests, run for the rest of your life. They are the most popular form of equity release plan, enabling you to unlock cash from your home.
What is a lifetime mortgage and how does it work?
The idea of a lifetime mortgage is to enable you as a homeowner to take out a loan secured against your property which doesn’t require repayment until you die or go into long-term care. You are essentially borrowing a proportion of your home’s value and nothing has to be paid back while you are still living there.
A lifetime mortgage is one way of accessing the wealth tied up in your property in later life, without the need to downsize or move to an area where property is cheaper. It gives you tax-free cash to spend as you choose, while still enabling you to keep ownership of your home.
When you take out a lifetime mortgage your home still belongs to you and you are still responsible for its upkeep. You can only take out a lifetime mortgage if you are aged 55 or over.
So, what is the difference between equity release and a lifetime mortgage?
Equity release allows homeowners to access the money they have invested in their home. Read more about why people choose equity release in our previous blog post here. Equity release enables you to obtain a lump sum of money or a steady stream of income, or a combination of both.
A lifetime mortgage is one of the two main types of equity release products, the other is a reverse mortgage.
What is the difference between a lifetime mortgage and a residential mortgage?
There are several key differences between a lifetime mortgage and a conventional residential mortgage. Here are the most common ones:
Term of loan – there isn’t a fixed duration for a lifetime mortgage, whereas residential mortgages are for a set period of term (usually 25 years).
Monthly payments – there are no monthly repayments with a lifetime mortgage (the loan is repaid when your property is sold when your die or go into long-term care). With a residential mortgage, monthly payments are required until the end of the term of the loan.
Interest rates – lifetime mortgages have a fixed interest rate throughout the term. There are a variety of options from fixed through to variable with a residential mortgage.
How interest is charged – on a lifetime mortgage, interest is added to the amount you owe each month (known as ‘rolled-up’ or ‘compound’ interest). Residential mortgages are either repayment (monthly repayments include the interest charged) or interest-only (monthly payments only cover the interest charged).
Affordability – there are no affordability checks if you choose not to make monthly payments with a lifetime mortgage. For residential mortgages income and outgoings are assessed to ensure you can afford the mortgage repayments.
Want to know whether a lifetime mortgage is right for you? Read more in our blog post here, or contact us on 01903 890 660 for an informal chat, free of charge.
Can I move house after taking equity release?
One of the main benefits of equity release is that you can withdraw money from the value of your home without having to leave it. If you’re happy with the size of your property and don’t wish to leave the area where you live currently (which is almost inevitable with downsizing), then this is a huge benefit. However, it tends to raise another important question; what if you want to move house?
The good news is that, yes, it is possible to move house after you’ve taken an equity release scheme. Whether you want to move closer to family or into a more manageable home, care facility, or simply decide later on that you would prefer to live somewhere else, most schemes will accommodate a relocation. Usually, the only requirement is that your new home offers adequate security for your equity release lender.
What does this mean?
This can have a variety of implications depending on your scheme and the property you’d like to move to. For example, if your new home is worth less than your current property, you will probably be required to pay back some of your loan early (which may incur early repayment charges). Alternatively, you may have to give your lender a higher percentage of your new home, to match the value of their initial loan.
There may also be restrictions about the type of property you can buy. You may not be able to move to a dedicated retirement apartment or a very unusual property, as this can affect the ability to eventually sell it on the open market. Lenders generally prefer conventional homes without factors affecting who can buy them once you pass away or move into long-term care.
How can I find the right scheme?
Before taking out any equity release plan, it’s important to speak to a professional advisor to help you understand if equity release is a good idea for you with consideration to how it might affect your finances and ability to move to a new house later down the line.
As a member of the Equity Release Council, I can guide you through your options to help you decide whether equity release is the right choice for you. Contact me today to arrange a free initial consultation to get started.
4 Common Questions about Equity Release
Previous posts have already covered two of the biggest questions people have about equity release: “Why do people choose equity release?”, and “what’s the best equity release scheme?”
However, given that equity release is a long-term financial decision, it’s understandable that people have many more questions and queries about how the equity release process works before choosing to proceed.
Every situation is different and will have its own unique considerations, but here are four of the most common questions that come up.
1 – Can anyone apply for equity release?
Equity release schemes will always have certain criteria that their applicants must meet. As a minimum, these usually include being at least 55 years of age and having the intention to take equity release from your main residence (not a second home, business or other investment property). Some schemes may offer specific arrangements if you are in poor health or are a smoker, for example.
2 – Can I stay in my home as long as I like?
Yes, equity release allows you to stay in your home for as long as you would like. Some lenders even allow for you to arrange in-home care if you become unwell, so you don’t even need to move into hospice accommodation if you don’t want to.
3 – What if I want to move to a new home in the future?
If you decide to leave your home, you can. Many equity release lenders will let you move to a new property, providing it meets certain eligibility requirements. However, if your new home is less expensive then you may have to pay back part of the outstanding loan. If you do not wish to transfer your equity release plan to your new home (perhaps you are moving in with family or into assisted living), you will have to fully repay the mortgage and may be subject to early repayment charges.
4 – Can my family end up inheriting debt?
In most cases, when someone passes away their debt will be paid off using any money or assets they leave behind and family members inherit whatever is left. However, there are equity release schemes that provide a “no negative equity” guarantee, meaning that, even if the sale of your home does not cover the outstanding loan, the scheme provider will not claim money from your other assets.
However, any equity release plan will impact the remaining value of your estate. It is always a good idea to take specialist advice about whether your will should be re-written to reflect this.
If you have any other questions about equity release, such as “why do people choose equity release?” or “what’s the best equity release scheme?” or “is equity release safe” have a read through our FAQ section of this site. Alternatively, feel free to contact me directly and we can discuss your situation and talk about my services in a little more detail.