With booming house prices and people living longer, equity release is more popular than ever. For many, it provides a source of tax-free funds to support their retirement lifestyle, make a one-off purchase or meet other financial needs.
The experts at Heritage Financial Planning can provide tailored advice on whether releasing equity is right for you and, if so, how to go about it.
Welcome to Heritage Financial Planning, equity release advisors
Do any of these statements apply to you?
- You are over age 55, have a substantial amount of equity in your home and either have no or a small existing mortgage.
- You have minimal pension savings or other assets that you could use to fund your retirement or one-off purchases.
- You would be unwilling to downsize to free up equity as you are attached to your home.
If so, then equity release may be suitable, depending on your personal circumstances.
But it is not a decision to be taken lightly.
The financial experts at Heritage can help you make an informed decision by assessing the potential impact on your finances, future plans, and the inheritance you leave for your loved ones. If equity release is appropriate, then we can advise on whether a lifetime mortgage or a home reversal plan is your best option.
Contact us today to arrange a consultation.
What is equity release?
Equity release is a way in which people (typically age 55 or above) can take out a loan against the value of their home to release tax-free cash from it.
This may be to fund retirement or simply to pay for one-off items such as home improvements or holidays.
There are two main ways to release equity from a home, including taking out a lifetime mortgage or home reversal. It can typically be taken as one lump sum, a series of smaller lump sums or even as a tax-free income.
Do I need to repay the interest?
Upon taking out an equity release loan, you have the option to pay the initial capital and interest, or you can opt to make no monthly payments.
If you make no repayments, then the interest accrues, and the loan must be repaid in full in the circumstances of a ‘qualifying event’.
As interest rates on a lifetime mortgage are relatively high, it is important to take into account how quickly the debt can snowball if you opt out of monthly repayments. This may erode the equity built up in your home and eat into your loved ones’ inheritance.
When do I need to repay the debt?
You do not usually need to make monthly repayments on the debt until a qualifying event. This will depend on your lender’s criteria but is usually when you die, move house or move into long-term care.
It is worth pointing out that for products that meet Equity Release Council (ERC) standards, they are required to feature a ‘no negative equity guarantee’, which means the debt you must repay will never exceed the value of your home.
What can equity release be used for?
While there is no prescribed use for the proceeds of equity release, this valuable source of tax-free cash is often used as follows:
- To fund your retirement in later life.
- To release cash for home improvements.
- To release money for luxury one-off items such as holidays.
- To help a family member buy their first home.
- To provide an early inheritance for your family.
What types of equity release plans are there?
There are two equity release methods in the UK: a lifetime mortgage or home reversion. It is important to seek advice from a qualified equity release specialist to understand the details, eligibility criteria, risks, and implications associated with each type of equity release scheme before making a decision.
Lifetime Mortgage
A lifetime mortgage involves taking out a loan against your home, yet with a lifetime mortgage, you retain ownership of the property.
With a lifetime mortgage, you can choose to ‘protect’ some or none of the value of the property. You also have the option to make monthly repayments to either the capital or the interest of the loan or let the interest ‘roll up’.
How much equity you can take depends on many eligibility factors, such as your age, your property’s value and location.
If you don’t need the maximum amount of money immediately, you can take an initial lump sum with the option of taking further equity in later life.
Unlike other debts, a lifetime mortgage is repaid when you die or if you move into long-term care. As equity release is deemed to be high risk compared to a simple mortgage, the interest rates can be higher.
It’s important to understand that a lifetime mortgage can potentially reduce the value of your estate and also affect your eligibility for means-tested benefits (see more on this below).
Home reversion
With home reversion, you sell all or a percentage of your home in return for either a lump sum, regular income or a combination of the two.
You usually get between 30%-60% of the current market value. The older you are, the higher the percentage of the current market value you will receive. You reserve the right to continue to live in your home under a lifetime lease.
Which equity release product is right for me?
A lifetime mortgage is the more common type of equity release plan. Using our equity release service, we will work with you to establish which is the most appropriate equity release plan for you – if indeed it is at all.
What are the criteria for equity release?
The specific criteria for equity release plans vary depending on the loan provider and the type of scheme.
However, here are some common criteria that homeowners typically need to meet for equity release:
- Those who own their mortgage-free home.
- Those who are age 55 or above and retired.
- There is usually a minimum property value requirement (typically £70,000).
Will it impact my benefits?
As a source of tax-free cash, equity release could impact your benefits in the same way as any other income.
If you receive means-tested benefits such as pension or universal credit, it is important to speak to your local council authority to establish how they treat the proceeds of equity release.
This varies from council to council and depends on your personal circumstances. The type of equity release, i.e. lifetime mortgage versus home reversion, can also be a factor.
Is releasing equity right for you? Get in touch with Heritage for advice
At Heritage, you can rest assured that your best interests are our biggest priority, whether that’s taking out a lifetime mortgage, a home reversion plan – or doing nothing at all.
In our team, Alex and George are both fully qualified to advise on equity release and can provide tailored advice to help you make the right decision for you and your family.
Contact us today to discuss our equity release service and arrange a consultation.
Equity Release – This form of lending is most suitable for those over 65. However, it’s possible if you are over 55. It is important to note that these are lifetime mortgages and to understand their features and risks. You will require a personalised illustration to make an informed choice.
How long does equity release take?
Once you start the process, it usually takes up to 8 weeks.
How much does equity release cost?
The interest rate on a lifetime mortgage is generally more than a regular mortgage because of the higher risk for the lender. So it’s important to get the advice of an independent financial advisor before you jump in.
At Heritage Financial Planning, our equity release advice fee is £500.
Can I move home if I have an equity release plan?
Some equity release plans allow you to move home, known as portability, while others may have restrictions. It’s important to check the terms and conditions of your equity release plan and discuss the implications of a potential move with your provider.
Can I repay an equity release loan early?
Some equity release plans offer early repayment terms, but charges vary between lenders and plans.
Will I still own my home if I opt for equity release?
Yes, with most equity release schemes, you retain full ownership and the right to live in your home for the rest of your life or until you move into long-term care.
How much equity can I release from my home?
The amount of equity you can release depends on various factors, including your age, property value, and the type of equity release scheme. Generally, the older you are and the higher the value of your property, the more equity you can release.
What are the risks associated with equity release?
Equity release is a long-term commitment that may impact inheritance and entitlement to means-tested benefits. It’s crucial to understand the potential implications, such as the accrual of interest over time, potential reduction in the value of your estate, and the impact on your financial circumstances.
What happens to the remaining equity in my property?
After a lifetime mortgage is repaid, your remaining equity will usually be distributed as part of your estate, according to your will. However, it’s important to consider that the amount of equity available for inheritance may be reduced due to the loan and accrued interest.
