What is equity release and why would I need it?
Equity release is a way of freeing up some cash from the equity that you have built up in your property over the years. This could be used for any purpose to top up your retirement income, to pay for home improvements or anything you may need.
‘Equity’ is the value of your property minus the total mortgage and any loans that you may have secured on it. For example, if your home is valued at £650,000 and you have an outstanding mortgage of £50,000, the available equity in your property would be £600,000.
You do not have to sell or move out of your property, so if you are happy in your home but need to raise some extra funds, equity release could be the way forward for you.
We always recommend that you seek financial advice before taking any such steps and that you speak to a mortgage broker about what is the best option for you. If you are in receipt of means-tested benefits then equity release could impact on these benefits so it is important to carefully consider this before taking any steps. We recommend you find a suitable advisor via the Equity release Council – you can find a suitable advisor here Advisers | Equity Release Council
Am I eligible for equity release?
- You must be at least 55 years old (or 65 in the case of a home reversion plan loan
- You must own a property in the UK, and it must be your main residence
- The property must be worth the minimum amount the lender requires (usually at least £70,000)
How does equity release work?
There are two main types of equity release:
- Lifetime Mortgage
This is the most popular type of equity release. Similar to a conventional mortgage, you are taking out a tax-free loan secured over your property. However, the key difference is that there is no obligation to make monthly payments and the interest rolls up over time to be repaid after your home is sold. Some lifetime mortgage plans may allow you to make payments on the interest, or even pay off some of the capital if you’d prefer.
But, given that there is no obligation for regular payments to be made, the full amount plus interest is only due to be repaid once the last homeowner dies or moves into long-term care. Until then, you’ll retain ownership of your home.
Despite the risk of value reduction, many equity release lenders provide no-negative-equity guarantees meaning you’ll never have to pay back more than the value of your property.
No equity release provider will offer a lifetime mortgage unless any existing mortgages or loans secured on the property are paid off. Paying off your mortgage early may result in an early repayment fee being charged and your mortgage provider will need to provide their consent.
2. Home reversion plan
This allows you to raise funds by selling all, or a defined share of your home for 20-60% of the property’s market value. If you only sell a share of your home, you will retain this share for inheritance purposes. In exchange for the reduced property valuation, the provider will allow you to live in your home rent-free until you die or enter long-term care. Following this, the house would then be sold, and the equity release provider would take their relevant percentage of the sale value.
The money released by either type of equity release may be available as a lump sum or regular smaller payments, or both.
What does an equity release solicitor do?
Our expertise includes:
- Advising on the nature of the equity release loan, your obligations and the terms of this
- Checking and verifying your identity ensuring your application is compliant with anti-money laundering laws
- Confirming your property paperwork is correct concerning any existing mortgages and loans, title deeds and insurance
- Ensuring an agreement on the loan completion date and the transfer of funds is in place
We are proud to be on the panel for the Equity Release Council and adhere to their quality standard for our equity release work.
Contact us for further advice on 0161 980 6099 or email us at [email protected]