Author: , CertPFS, CertCII(MP), CeRGI, CeLTM, CeRER
Last updated: August 3rd, 2022
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.