What is equity release?
The equity in a property is the difference between its value and any mortgage or other debts held against it. Equity release is the term given to unlocking or making available some, or all of this value in your home whilst continuing to live in it. This can be done through either a lifetime mortgage or by selling a share of the property to a home reversion company. This is known as a home reversion plan.
Some people choose to keep the equity in their property throughout their lives whilst others might choose to use this money as they wish in their retirement. You can use equity release to give yourself a tax-free cash sum to spend as you wish, a regular income, or a facility enabling you to draw down money against the property, as and when required.
The amount of money that can be taken as an equity release is limited and determined by your age(s), the property value and sometimes your health. This will vary between lenders and the type of plan you choose.
You can continue to live in your home for the rest of your life. This also applies to your partner as long as the lifetime mortgage or home reversion plan is in joint names. When you die or if you move into a care home the property is then sold. You would then normally, in the case of a lifetime mortgage, pay the money back to the lender together with any interest accrued from the proceeds. In the case of a home reversion scheme the company would retain a share of the proceeds relating to the proportion of the property they purchased from you.
Equity release is not right for everyone and may affect your entitlement to state benefits and will reduce the value of your estate.
Are you eligible for Equity Release?
To be eligible for equity release, you need to be over 60, own your own home in the UK which needs to:
- be in a reasonable state of repair
- have adequate buildings insurance cover
- if leasehold, the property will need at least 75 years of the lease remaining (the loan can be used to extend a lease ).
Coming soon: The FirstStop Guide to Releasing Capital from Your Home
The importance of taking advice
There are numerous providers of equity release plans. Every lender can have differing interest rates, loan criteria and customer benefits each of which need to be thoroughly researched to match your personal needs.
It is essential to seek independent advice when considering equity release from a qualified adviser who will talk to you about your circumstances and assess whether equity release is the right option for you and if so, provide you with comprehensive advice on an appropriate equity release plan that meets your needs and circumstances. If it isn’t right for you the adviser should be able to help you consider what your other options might be.
FirstStop Advice believes that financial security in later life is an essential ingredient in providing older people with a sense of wellbeing. To attain this it is important to seek good quality financial advice from an independent financial adviser who is qualified where specialist advice is required and has a good understanding of the needs of older people. The Society of Later Life Advisers (SOLLA) aims to ensure that consumers are better informed about the financial issues of later life. Because their accredited advisers specialise in the financial needs of older people the society’s objective is to provide the added reassurance that the practical help and guidance their advisers offer can help people to make the right financial decisions at the right time. www.societyoflaterlifeadvisers.co.uk
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