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Equity release schemes can be a sensible and practical way of releasing cash from your home if you are over 55. But it’s a big step so seek expert advice and shop around.
Equity release is a way of releasing money from the value of your home without having to move out or pay it back during your lifetime.
If you are cash poor but asset rich – i.e. you have a low income but your home is valuable – then it could be a good way of getting your hands on some of that cash without having to downsize.
With a lifetime mortgage, you borrow money against the value of your property. The amount you can borrow is dependent on the value of the property and your age (and that of your partner if it’s a joint scheme).
With a home reversion scheme, you can sell all or part of the property to a reversion provider. This means that, if your property increases in value and you sell up, you’ll only benefit from that increase on the part of the property you own.
If you take out a lifetime mortgage, you will continue to own your home.
If you go for a home reversion plan, you will have to give up the deeds and the equity release scheme provider will own all or part of your home. But you will still own a lifetime lease.
In both cases, you’ll be allowed to stay in your home until you either die or go into long-term care.
However, if you breach the contract – by letting your home fall into disrepair, for example – technically, you could be forced to leave.
Try Key Advice’s equity release calculator today to find out how much you could release
When you die or move into long-term care, the equity release scheme provider will sell all or part of your home and keep the money. So that money won’t go to your loved ones after you die. And, once you’ve built up a substantial debt, you may not be able to move to a different home while you’re still alive.
Remember that you can only spend the money once. If you’re in your 60s and thinking of using equity release to fund a lavish lifestyle, the money could run out by the time you need to pay for care homes and other support.
There are reputable equity release providers (Equity Release Council members) but watch out for those who aren’t. There’s more than one way that dishonest providers can take advantage of your situation:
With a lifetime mortgage, if you have built up a substantial debt, you may not have money available to buy a new home. So, effectively, you could be stuck where you are until you die.
With a home reversion plan you can normally select a home which meets your requirements and the provider’s criteria. It will normally need to be less than the value of the property you are occupying. And you will be responsible for the selling costs as well as the provider’s legal fees.
You have a legal right to buy back your home at any time. But this can be very complicated so seek professional advice. It can also be expensive to do so – as well as paying off whatever interest you’ve built up, early repayment charges can sometimes be as high as 25%.
Make sure your provider is part of the Equity Release Council (see below), because these schemes have to provide a “negative equity guarantee”. This means that if the value of the property falls below the amount you owe, the provider will take a loss and it will not be passed on to your family.
Also, if you and your partner are both eligible by age, you can take out a joint equity release plan, which means your partner will be able to stay in the property for the rest of his or her life.
To find out whether your equity release provider is trustworthy you should make sure they are a member of the Equity Release Council (ERC) and follow the Equity Release Council’s code of conduct. Among other criteria, council members have to promise to make the best interests of their clients paramount and to treat customers fairly in all their actions.
You will have to pay application and valuation fees, so look for a cheap deal. Application fees can vary from £500 to £700 and valuation fees depend on the value of your house.
And, interest rates vary from 5-7%. If you’re paying 7%, the debt will double every ten years, so it’s worth shopping around for the cheapest option.
You may also want to consider your mortgage options — see mortgages for over 50s
If the value of your estate is reduced, this might decrease your inheritance tax liability. But this depends on a number of factors, so seek professional independent financial advice.
If your income changes as a result of an equity release scheme, this may affect your eligibility for means tested benefits, so seek advice on this.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
Mortgage service provided by London & Country Mortgages (L&C), Unit 26 (2.06), Newark Works, 2 Foundry Lane, Bath BA2 3GZ, authorised and regulated by the Financial Conduct Authority (FRN: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of Seopa Ltd, for home insurance, authorised and regulated by the Financial Conduct Authority (FCA FRN: 313860).
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of LifeSearch Limited, an Appointed Representative of LifeSearch Partners Ltd, authorised and regulated by the Financial Conduct Authority. (FRN: 656479).
Independent Financial Adviser service is provided by Unbiased, who match you to a fully regulated, independent financial adviser, with no charge to you for the referral.
Bridging Loan and specialist lending service provided by Chartwell Funding Limited, registered office 5 Badminton Court, Station Road, Yate, Bristol, BS37 5HZ, authorised and regulated by the Financial Conduct Authority (FRN: 458223). Your property may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it.
