What is Equity Release?
More people are finding themselves in need of cash during their retirement due to a lack of savings. Equity release is a way of extracting or releasing cash (equity) tied up in your home to provide you with a cash lump sum by effectively taking out a loan secured on your home.
This loan provides you with cash whilst also allowing you to remain in your home for your retirement, without any upfront monthly repayments. You can take the money you release from your home in one lump sum or in several smaller amounts on which you'll pay interest, or as a combination of both. This loan would then be repaid when your property is eventually sold. Equity Release is only available to people over the age of 55.
There are two types of Equity Release:
- Lifetime Mortgage: You ‘release’ or borrow a proportion of your home's value (e.g. £50,000). Interest is then charged on that amount, but you do not have to make monthly repayments as a standard mortgage would require. Instead, the interest is added to the loan and would then fall, due to be repaid upon eventual sale of your property. The interest is compounded or 'rolled up' over the period of the loan
- Home reversion scheme: An equity release company buys a share of your property from you (e.g. 10%) for less than the market value. When you die, or move into long-term care, and the property is sold, the provider gets the same share of whatever your home sells for as repayment. You can take out some lifetime mortgages from the age of 55, but home reversions are available only to people aged 65 or older.
How Can Equity Release Benefit Me?
- Any money released is tax free.
- The ‘no-negative equity guarantee’ offered by all Equity Release Council-approved lenders means that any debt that is created, plus any interest, will never become more than the property’s future value upon death.
- Under a Lifetime Mortgage, you can choose to either pay the interest each month to avoid the debt increasing (Interest Only Lifetime Mortgages) or allow it to be continually added to the amount borrowed (‘Roll Up’ Lifetime Mortgage).
- Under a Home Reversion plan, you can sell some, or all, of your home ownership to provide a lump sum of money without needing to pay any rent back.
- Enables you to release some equity from your home’s value but enables you to remain at the property for the duration of your lifetime.
- Gives you cash up front.
- Affords you a better quality of life (e.g. money to make home improvements, go on holidays, give inheritance money to children or grandchildren)
How Can Apply for Equity Release?
There are a couple ways to do this:
- Speak to an equity release specialist mortgage broker who will arrange the most suitable product for you and discuss how much money you’d like to draw down.
- Instruct a solicitor who will then review the mortgage offer and deal with the lender’s solicitor requirements (where applicable). We will also arrange appointments for the client – either at our office, via video call, or home visit to facilitate the equity release advice and to sign paperwork – this has to be done in person or by way of video call as per lender requirements.