Equity Release: Is It Right For You?
Equity release enables thousands of homeowners every year to tap safely into their housing wealth without having to make monthly payments. Last year, older homeowners borrowed nearly £4 billion from the value of their homes to boost their retirement funds – the equivalent of £11 million a day – and up nearly a third on 2017.
Here, we look at the pros and the pitfalls to help you decide if equity release is right for you. Do your research thoroughly to ensure you find an option that suits you. The level of fees may also vary between firms, clients will always incur own solicitor costs, but some adviser firms do not charge any fee and neither do some providers.
Done correctly, equity release should have no impact on an individual’s tax position or their state benefits. However, each individual’s circumstances need to be assessed and you will need a fully-qualified financial adviser to help you understand the steps involved and talk you through your options – and, of course, explain the full benefits of equity release.
In today’s equity release market there are a range of products to choose from, with new and innovative products being created regularly. This means that whatever your equity release needs, there is likely to be an equity release plan that suits.
Many older homeowners, who have seen the value of their houses rocket, are turning to equity release as they are unable to sell-up and downsize owing to a stagnant market. And a drop in interest rates for the loans in recent years has seen the popularity of the plans boom.
What is it?
Equity release allows over-55s to access the cash tied up in their homes as a tax-free lump sum or in regular, smaller instalments. No monthly repayments are required and, instead, the debt and interest is taken from the value of your property when it is sold after the surviving homeowner dies, sells the home or goes into long-term care. There are two types of equity release – both of which are regulated by the Financial Conduct Authority (FCA).
• Lifetime Mortgages You can choose to extract your funds in a single lump or in smaller amounts over time up to the maximum limit agreed with the plan provider. You retain full ownership of your home and the interest can be fixed or rolled up. A lifetime mortgage will reduce an inheritance and may affect entitlement to means tested benefits. Interest is charged on the loan plus any interest already added.
• Home Reversion plans These allow you to access all or part of the value of your property while retaining the right to remain in it, rent free. The provider will purchase all or a part percentage of your property. The percentage you retain will always remain the same regardless of the change in property values, unless you decide to take further cash releases. At the end of the plan, your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.
What impact will it have on your family?
Taking out an equity release plan could leave your family with little or nothing to inherit from your property. You need to be comfortable with this possible outcome and may wish to discuss it with them before making any decisions. You may also want to think about asking them along to any meetings you have with your solicitor or the financial advisor.
Once you have decided that you want to know more about equity release, you will need to set up a meeting with a fully qualified financial adviser who is a member of the Equity Release Council. They will review your circumstances to check if equity release is right for you and find a product to suit your requirements.
• Involve your family and discuss your plans with them.
• Appoint a solicitor to carry out the necessary legal work to complete your contract with the equity release provider. It’s also worth checking that the solicitor you appoint is familiar with equity release products and the processes.
• The plan provider will need to have a valuation of your home and will instruct a RICS-qualified surveyor to assess the property’s value and survey it.
• Legal checks (i.e. title deeds to the property) and contract signing.
• Visit equityreleasecouncil.com
Did you know?
• The cash raised through equity release is commonly spent on home improvements, clearing debts, gifts, care fees and holidays.
• According to The Financial Ombudsman common complaints surround hefty early repayment charges, the final repayment bill and the suitability of the product itself. Two thirds of complaints come from relatives.