Equity Release utilises an asset – your home which for most people is often their biggest asset however is an illiquid one. Having the ability to ‘draw’ on the capital value of your property can allow you to do many things to make your retirement more enjoyable i.e. additional income, holidays, new car, home improvements but also home adaptations, care costs and continued independence.
Often clients use funds now to provide ‘pre-inheritance ‘ to their children or grand-children in order to assist them with debt repayment, deposit for their own property, school fees or extended family hollearidays.
Rates of interest are mostly fixed for life so you can see from the outset how the debt will increase over time (assuming you don’t service the interest) and compare this to the estimated value of your property over the same time whilst getting enjoyment from the funds released and possibly reducing your beneficiaries future inheritance tax bill as it will create a debt on the estate!
Equity release is probably one of the most regulated financial products in the market and has many safeguards which have been in place for many years (even pre regulation). Reputable advisers, solicitors & lenders will belong to the Equity Release Council and adhere to their rules and guidance which aim to ensure that its members are highly professional and act with integrity and transparency in offering high-quality products and services to customers.
Yes, of course, there are downsides (reduced equity in the property in future for own use or leaving to beneficiaries, potential reduction in state benefits being received, set up costs and ongoing interest being charged, responsibility to insure and maintain property) but these have to be balanced against the benefits and ‘reasons why’ you might be considering releasing equity.
Is equity release safe?
Equity release is probably one of the most regulated financial products in the market and has many safeguards which have been in place for many years (even pre-regulation). Reputable advisers, solicitors & lenders will belong to the Equity Release Council and adhere to their rules and guidance which aim to ensure that its members are highly professional and act with integrity and transparency in offering high-quality products and services to customers.
Please see section 3 ‘The Sales Process’ for Councils Rules & Guidance: https://www.equityreleasecouncil.com/about/standards/rules-and-guidance/
Equity Release ‘typically’ in the UK comes in the form of a ‘lifetime mortgage’ which is a long-term loan secured against your property with rolled-up interest which is only repayable when you die or move into long-term care when your home is sold and the money is used to pay off the original loan amount and accrued interest. Any equity over this would go to your beneficiaries of your estate as detailed in your will.
Most lifetime mortgages are portable from property to property, sub¬ject to lenders property eligibility criteria. Loans can be repaid early but may be subject to an early repayment charge. Many modern-day plans allow payment of interest/capital up to a maximum of 10% of the original amount borrowed without penalty charge.
- Am I eligible for equity release?
To qualify for equity release, you must be at least 55 years of age and own a conventional home in the UK with a value of £70,000 or more.
- What types of equity release are there?
There are two main types of regulated equity release, known as lifetime mortgages and home reversion plans. You can read more about these plans here.
Schemes will vary, but lifetime mortgages typically allow you to withdraw funds from your home in multiple small amounts or a single lump sum, up to a maximum limit that is agreed with the plan provider. You retain full ownership of your home, and the interest is either fixed or “rolled up”. The loan is repaid by your estate when you pass away or move into long-term care.
With a home reversion plan, the provider purchases a specified percentage of your home (up to 100%) so that you can access its value. You retain the right to remain in it, rent free. At the end of the plan, when you sell your home, pass away or move into long-term care, your property is sold and the provider takes their portion while you (or your estate) receives the remaining amount.
- Can I remortgage to release equity?
If you have no mortgage, a standard mortgage or other loan secured or an existing equity release – lifetime mortgage you could consider remortgaging to release equity or further equity from your property.
In very basic terms lifetime mortgages are interest only mortgages but without the requirement to pay the interest during your lifetime and therefore no affordability calculation. It is true ‘asset-backed’ lending based primarily on your property value and the age of the youngest applicant. Impaired health can also mean lower rates of interest or high loan amounts to the value of your property.
Existing equity release – lifetime mortgage plan holders particularly those with schemes over 8 – 10yrs may find they no longer have any redemption charges and could significantly reduce their interest rate, increase their borrowing or both !
Even those with penalties could find it would only be a few years to break-even due to the lower rates on interest on the market whilst providing themselves further equity to use as they require.
- How long does equity release take?
This will be advisor specific but essentially you have to ‘know your client’. For me this involves an initial appointment to introduce myself, my independent status, who Equity Release Sussex are and outline our service and how we are remunerated (we do not charge any upfront fees so meetings are free and without obligation).
I would then obtain clients personal and financial circumstances by way of open discussion and formal fact finding followed by a generic overview of what equity release is and then more specifically how this may meet clients’ needs from the details they have provided.
Following this I would be checking the client’s understanding and answer any questions they may have at this stage and outline next steps should this be appropriate.
This would be for me to research the market fully and make a client specific recommendation based on the discussions and fact find information obtained. A second appointment would then be arranged for me to present my recommendations and if acceptable complete an application to the lender (sometimes this could be at a third appointment).
From the point of application to completion I find this typically would be 6-8 weeks for a standard case. Factors which may effect this timescale include unregistered properties, transfer of ownership i.e. sole to joint names, managing agent’s enquiries (Leasehold properties) and of course client availability (holidays etc.)
- How do I set up an equity release plan?
Before committing to an equity release plan, it’s important that you seek independent financial advice to help you fully understand the implications. I offer free initial consultation to answer any questions you may have, and can make face to face appointments either at our office in Worthing or at your own home.
Working together, we can assess your circumstances and I can research the plans that best suit your requirements. Once you are confident that equity release is the right decision for you, I will help you apply for your preferred scheme. For more information, feel free to send me a message via the form on our contact page.
- How much can I borrow?
The amount of money you can borrow against your home will depend on a number of factors. This includes the current property value, you and your partner’s age and health, and the specific scheme offered by the lender. Lifestyle choices and past medical conditions may also be factored in, which is why it’s important to consider all the possible options in order to apply for a scheme that is appropriate to your circumstances. Use our equity release calculator for an estimate.
- How much does equity release cost?
There are 4 ‘potential’ fees that will be incurred in arranging an equity Release – lifetime mortgage:
– Lender Valuation
– Lender Arrangement
– Equity Release Adviser
Given the competitive nature of the market most lenders don’t currently charge a valuation fee and many plans don’t carry a lender arrangement fee however if they did the average would be around £600. Our Adviser fee will depend on the complexity and work involved but typically is a maximum of £1295 and solicitor fees can also vary significantly but a typical fee would be around £650 to £750 for a standard conveyance however leasehold, transfer of equity and unregistered properties would have additional charges made.
So around the £2,00 to £2,500 in total which generally are not required until completion of the case so could be included / added to the initial release amount or paid up front.
- Will the cash I release from my home get taxed?
If you withdraw a cash lump sum, this money is tax-free. However, should you then continue to earn a regular income, make an investment or deposit it into a savings account, tax may be payable on interest or gains you receive.
- Can I move home if I take out an equity release plan?
Many people choose equity release as a way of accessing funds without moving home or downsizing. However, this doesn’t mean that you have to remain in your home indefinitely once an equity release plan is in place. Should you wish to leave your home, you have the right to move to a “suitable alternative”, as long as it is acceptable to your provider. In most cases, this simply means choosing a new home that a lender would be able to sell on the open market without restrictions.
Equity Release Sussex is a trading style of TRM Financial Ltd (FCA Ref 725622), an Appointed Representative of The Right Mortgage Ltd, which is authorised and regulated by the Financial Conduct Authority (649443). Registered in England and Wales no. 09832887. Registered Address: 70 St. Johns Close, Knowle, Solihull,
England, B93 0NH
For Independent Equity Release advice we do not charge any upfront fees however,
a fee of up to 1% of the total cash facility arranged is payable (subject to a typical minimum charge of £1,295) on completion for our service in relation to lifetime mortgage contracts plus commission from the lender.
The exact amount will depend on the complexity and work involved in your case and will be confirmed by way of a formal fee agreement.
For Independent Mortgage Advice we charge a fee of up to 1% of your mortgage amount payable (subject to a typical minimum charge of £295 payable on application & £300 on completion (£595 in total) plus commission from lender. The exact amount will depend on the complexity and work involved on your case and will be confirmed by way of a formal fee agreement.
To understand the features and risks, ask for a personalised illustration. Think carefully before securing other debts against your home.