If you own a property, either outright or with a small outstanding mortgage, you have a built up a store of equity that can be released to provide a lump sum, ongoing income, or both.<\/p>\n
This guide will aim to answer all of your burning questions regarding equity release starting from the basics and progressing to every little detail imaginable.<\/p>\n
<\/a><\/p>\n Your home, or other property you might own, has an intrinsic monetary value attached to it and this product effectively allows you to liquidate some of that value and turn it into cash.<\/p>\n By signing up to an equity release scheme from one of the many different providers on the market, you will choose between a lifetime mortgage and a home reversion plan, both of which will be explained in more detail in the upcoming section.<\/p>\n Either way, you can unlock a percentage of the value that is tied up in your home and use the money for a purpose of your choosing.<\/p>\n The types of companies that offer plans of this nature are varied; they are regulated by the Financial Conduct Authority and must be registered in order to legally sell these services.<\/p>\n Reputable companies will also be signed up to the Equity Release Council<\/a> (ECR) which is the industry body representing the whole sector.<\/p>\n <\/a><\/p>\n The schemes on offer come in two types as mentioned above. We recommend that you carefully read through the forthcoming details of each before deciding which best matches your preferences and requirements.<\/p>\n <\/a><\/p>\n Much life a traditional mortgage that you get when buying a property, a lifetime mortgage is a loan that borrows against the value of your home. Interest is charged much like any other loan, and this is typically added to the overall repayment amount (although you can opt to pay the interest in monthly instalments).<\/p>\n When the property comes to be sold, either upon your death or through choice, the mortgage and any accrued interest is paid off, with the remaining sum going to your beneficiaries.<\/p>\n You will need to be at least 55 years of age to get a lifetime mortgage; if there is more than one person involved, this applies to all parties.<\/p>\n The amount you can borrow will depend on factors such as the value of your property and how old you are when you apply. It is possible to borrow as much as 50% of the market value of your home, although typically it will be more like 20% to 25%.<\/p>\n There are three variations of a lifetime mortgage which are as follows:<\/p>\n You may be asking yourself what the advantages and disadvantages are of each type. Well, we’ve already thought of that and put together a little list for you:<\/p>\n As with any type of credit, it is always wise to compare every viable option out there to ensure that you get the best deal. There are, however, some things that you should look out for:<\/p>\n <\/a><\/p>\n The second type of equity release comes in the form of a home reversion. What this means is that you sell a part, or all, of your home in return for a cash lump sum or a regular income. You are allowed to remain living in the property, either without paying any rent or paying a fairly tiny amount thanks to a legal document called a lifetime lease.<\/p>\n The major downside of home reversion is that you will not be paid the market rate for the part of your property that you sell. Instead, you will get a lower sum, often significantly so. How this works is that you might receive 25% of the market value of the property, but have to hand over 75% of the equity contained within it.<\/p>\n The percentage of the value of your home that you will have to surrender depends on how much money you wish to receive and how old you are. How much you get is related to how old you are and how long the purchasing company expects you to live. Typically, the younger you are, the more you’ll have to give away in percentage terms relative to what you receive.<\/p>\n Home reversion plans are generally worse value for money in the long term than lifetime mortgages. People who might want to consider this option include those who want the largest possible lump sum or those with little need or desire to leave the property to beneficiaries when they die.<\/p>\n The minimum age requirement for a home reversion plan is usually 65, but the older you are, the better deal you will be offered.<\/p>\n <\/a><\/p>\n When you first decide to investigate equity release, you will need to speak with an independent adviser who can guide you through the process.<\/p>\n They will look at your financial situation and work out whether or not equity release is a suitable product for you. If it is, they will compare the available deals and discuss the costs and implications of taking out such a product. They will also provide you with a Key Facts Illustration with all of the details.<\/p>\n Assuming you are happy with the recommendations being put forward, your adviser will help you to fill out an application form and send it to your chosen provider.<\/p>\n The provider will arrange for a surveyor to come and value the property and you will then receive an offer letter telling you how much you can release. Your adviser will walk you through everything in this letter to ensure that you are fully aware of all the features and risks.<\/p>\n If you are happy to proceed then you will have to sign to say that you accept the offer being made. After some checks to ensure your legal ownership of the property, the money will be released to you.<\/p>\n <\/a><\/p>\n From the time that you first contact a financial adviser to get details of the schemes available, you can expect to wait between 8 and 12 weeks before you receive either your lump sum or your first regular income payment.<\/p>\n Of course, this reflects a deal that is free from any major complications and is based on the swift signing and sending of documents. If you choose to think for a while, any time spent doing so needs to be added to the above estimate.<\/p>\n <\/a><\/p>\n The cost of an equity release plan is not fixed and will vary depending on a number of things. A rough guide for most circumstances is between \u00a31,200 and \u00a31,500 and this is made up of the arrangement fees paid to the provider, the legal fees paid to your adviser\/solicitor, the cost of valuation, and the cost to you of ensuring the property is fully covered by building insurance (normally a condition of lending).<\/p>\n <\/a><\/p>\n There is an almost endless list of potential questions that might be asked with regards to equity release schemes. While we will do our very best to cover as many as possible, we recommend that you speak to an independent financial adviser to ensure that you fully understand the implications before signing any contract.<\/p>\n <\/a><\/p>\n If you are at an age where you would like to release some of the equity in your home, but you are still in the process of paying it off with a conventional mortgage, you could still be able to.<\/p>\n Most providers will insist that you use any cash received to first pay off the outstanding balance on your mortgage, but you will be free to do whatever you like with the remaining amount.<\/p>\n Bear in mind that your mortgage company may add early repayment charges if you go down this route, so find out what these are likely to be prior to arranging anything.<\/p>\n <\/a><\/p>\n By and large, you are free to do whatever you like with the equity that you release from your home. If this means buying another property, you should not find yourself restricted by the scheme itself.<\/p>\n Depending on exactly what you want to achieve, however, you may find that it is difficult or impossible to buy that second property.<\/p>\n First of all, the size of the lump sum you receive will make a difference. If you are able to pay for the second property outright, you can go ahead and make the purchase. If, however, you need to get a mortgage to help pay for it, your age might prevent you from doing so. Many mortgage companies will flat out refuse a mortgage for people over a certain age, although if it is only a small mortgage with a short repayment term, it still might be possible.<\/p>\n If, on the other hand, you are looking to help your children to purchase their own home, you can use the equity released as a deposit or as part of the new breed of family mortgages.<\/p>\n <\/a><\/p>\n If you own a property that you currently let out to a tenant (and either own it outright or are prepared to pay off the mortgage as discussed above), things get a little complicated. It might be possible, but there are almost certainly better ways than through an equity release scheme.<\/p>\n You could just sell the property which would release 100% of the value at market rate. The downside is that you would lose out on any increase in the value of the property and, of course, the rental income being generated.<\/p>\n Alternatively, thanks to this assumed income in the form of rent, you could be eligible for a buy-to-let mortgage although age restrictions might apply. You could take out a mortgage of \u00a340,000 over 10 years, for example, and use the rental income to pay it back while spending the money on whatever you like.<\/p>\n <\/a><\/p>\n The money that comes from releasing equity in your home is not subject to income tax regardless of whether you take it as a lump sum or in regular payments. What you do with the money afterwards \u2013 such as investing it, buying an annuity, or simply saving it (except in an ISA) \u2013 can lead to income tax being charged.<\/p>\n <\/a><\/p>\n Both types of equity release plan effectively reduce the size of your estate and thus can be used to mitigate inheritance tax that might be paid by your beneficiaries. At the time of writing, inheritance tax is 40% on the value of an estate over and above the \u00a3325,000 threshold.<\/p>\n So a property worth \u00a3325,001 or more will result in an inheritance tax bill needing to be paid.<\/p>\n If you release equity now, then upon your death, part or all of the proceeds of the sale of your home will go to the equity release company which leaves less of an estate to be inherited and will either reduce or avoid the tax burden.<\/p>\n <\/a><\/p>\n Depending on whether you are over or under the state pension age, you may be entitled to, and receiving, one or more types of government benefit. When you take equity from your property, either as a lump sum or regular income, you may find that your entitlement changes.<\/p>\n It is worth noting that this only applies to benefits that are means tested \u2013 it does not impact any benefit whose provision is not dependent on the claimant’s income or capital.<\/p>\n The question of how signing up for an equity release product will affect the types and amount of benefit you receive is not a straightforward one. There are multiple considerations to make and these should always be discussed by the person selling you the plan.<\/p>\n Here is a list of some of the main benefits that can be affected by your release of equity:<\/p>\n Equity taken as a lump sum only gets accounted for if it pushes an individual’s total capital beyond the \u00a310,000 threshold. Beyond this point the amount you receive will fall as an income of \u00a31 per \u00a3500 (or part thereof) above the minimum is assumed. Eventually your entitlement would cease as the assumed income would meet the government set minimum amount.<\/p>\n If you take an income, the amount of pension credit you receive will also fall to reflect this.<\/li>\n If you take your equity as a lump sum and it pushes the amount of capital you own to over \u00a316,000 then your entitlement to CTB would stop (unless you receive Guaranteed Pension Credit in which case you still receive full entitlement).<\/p>\n If, on the other hand, you draw the amount as a regular income, the amount of CTB you receive may be reduced (the level of which depends on the income received).<\/li>\n In addition, should you be on Income-Based Jobseeker’s Allowance, Income Support, or Income-Based Employment and Support Allowance, releasing equity can impact how much you receive or if you do at all.<\/li>\n<\/ul>\n You should always ensure that you release equity in the way that leaves you best off overall. Take too much in a lump sum and your income may fall considerably due to the loss of key benefits. On the other hand, you may find that any equity released as an income is partly offset by the reduction of benefits.<\/p>\n <\/a><\/p>\n You should think of equity release as a long term plan which is only completed upon your death. While it is possible to repay a lifetime mortgage early, you could find that the redemption charges are quite severe.<\/p>\n If you took out a home reversion plan, the only way to get out of it is to sell the property. Given the large steaks often taken by the company, you will probably find it difficult to buy another property with the slice you are left with.<\/p>\n <\/a><\/p>\n While the vast majority of companies will only allow you to release the equity in a UK property, there are a small, but growing, number of companies that deal specifically with overseas properties.<\/p>\n We cannot recommend any specific companies and we strongly advise you to look in great detail at any that you might come across. Do your due diligence before entering into any agreement.<\/p>\n <\/a><\/p>\n Because you have an asset in the form of property, getting a lifetime mortgage should not be an issue even with a poor credit rating. Unlike unsecured loans and credit cards, the lender has the safety in knowing that whatever happens, there is equity built up in your home to repay the debt.<\/p>\n And if you opt for a home reversion plan, it is not a form of credit per se, so your personal financial circumstances will not come into play.<\/p>\n <\/a><\/p>\n To calculate the amount of money that can be released from your home, the company must get a valuation from a chartered surveyor. This valuation must be independent so as to be fair to both parties.<\/p>\n If you believe that the valuation being proposed is too low, you can try and get a second opinion from your own independent surveyor, or you can pull out of the deal altogether.<\/p>\n <\/a><\/p>\n With a lifetime mortgage product, assuming you have ensured that the contract contains mention of portability, you should be able to move home and keep the same deal.<\/p>\n If you opt for a home reversion plan, you will only be able to move house if you still hold a sufficient share in the property to finance a purchase \u2013 this is unlikely to be a realistic choice for many.<\/p>\n <\/a><\/p>\n If you own your home with a partner, the rules are fairly straightforward. First of all, you both need to meet the age requirements set out above (55 or over for a lifetime mortgage and 65 or over for home reversion) in order to qualify.<\/p>\n Next, if both of your names are on the contract, then if one of you dies, the other can remain living in the property until they also die or go into care.<\/p>\n <\/a><\/p>\n A drawdown mortgage sits somewhere between taking a lump sum and arranging an ongoing monthly income. Essentially the lender provides a cash reserve facility which means that you can withdraw smaller cash sums as and when you need them.<\/p>\n The biggest benefit is that you only pay the interest on the money that has been withdrawn and not on the total amount available to you so you face less compounding over time. There are downsides in that this facility may only last a fixed number of years or it may be withdrawn if the lender chooses to do so.<\/p>\n <\/a><\/p>\n While it is rarely a condition that the person releasing equity has power of attorney arranged, it can be a good idea to do so. If you have an accident or fall ill and are unable to handle your own affairs then having a child or friend to deal with the arrangements is a sensible precaution to take.<\/p>\n If you have a lifetime mortgage, but did not take the full amount that was possible at the time, this person could then decide to release further equity in order to help pay for your care or other needs you might have.<\/p>\n <\/a><\/p>\n Most providers will accept leasehold properties for equity release, although the length of the lease will play a role. Generally, you should have a minimum of 30 years left on the lease from the date at which the arrangement ends \u2013 i.e. when you die.<\/p>\n So if they expect you to live for another 25 years, the lease might have to be 55 years or more for you to be able to go ahead with the deal. Depending on the cost, you can always extend the lease to a sufficient length beforehand.<\/p>\n <\/a><\/p>\n If you own a home that is not a standard brick or stone frame, or is a timber one built before 1950, you will find it much more difficult to find a suitable scheme.<\/p>\n Similarly, mobile homes and park homes are unlikely to be eligible and nor are Grade 1 listed properties (lower grades might be ok).<\/p>\n If you are unsure what type of construction your property is, look at the deeds and solicitor files from when you purchased the property. If you bought the property using a mortgage, you should also be able to find details on your mortgage documents.<\/p>\n <\/a><\/p>\n If you are looking to pay for care within your own home, equity release is certainly an option.<\/p>\n If, on the other hand, you need to fund care in a residential home, it is not a possibility. Instead, you will simply have to sell the property to fund your care.<\/p>\n <\/a><\/p>\n If you don’t want to opt for an equity release product as outline above, there are some other options available to you. These can allow you to get just as much of a lump sum (or even more), but there are other implications and considerations to make.<\/p>\n <\/a><\/p>\n Whether or not you have already paid off one mortgage on your property, you may be able to remortgage to effectively take some money out of your home to use how you like. Essentially, you will once again have to make monthly repayments and pay interest just like any other mortgage holder.<\/p>\n The chances of you securing a remortgage lessen as you get older. If you are 55 then you could be permitted one of quite some length, particularly if you still work. Remortgaging becomes less of an option for those over the age of 65 unless you can prove a significant income from other sources \u2013 although in which case you might be better off liquidising them instead.<\/p>\nWhat Is Equity Release?<\/h2>\n
What Types Of Equity Release Are There?<\/h2>\n
Lifetime Mortgage<\/h3>\n
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Home Reversion<\/h3>\n
What Is The Process Of Equity Release?<\/h2>\n
How Long Does It Take?<\/h3>\n
What Are The Costs Involved?<\/h3>\n
Equity Release FAQs<\/h2>\n
Can I Release Equity If I Have An Outstanding Mortgage?<\/h3>\n
Can I Release Equity To Buy Another Property?<\/h3>\n
Can I Release Equity From A Buy-to-Let Property?<\/h3>\n
What Are The Income Tax Implications?<\/h3>\n
Can Equity Release Reduce Inheritance Tax?<\/h3>\n
What Effect Will Equity Release Have On My Benefits?<\/h3>\n
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Can I Repay The Loan Early?<\/h3>\n
Can I Release Equity In A Property Abroad?<\/h3>\n
What If I Have Bad Credit?<\/h3>\n
How Is My Property Valued?<\/h3>\n
Can I Move House?<\/h3>\n
What If The Property Is In Joint Ownership?<\/h3>\n
What Is A Lifetime Drawdown Mortgage?<\/h3>\n
Do I Need To Give Power Of Attorney To Someone?<\/h3>\n
Can I Release Equity From A Leasehold Property?<\/h3>\n
What About Properties Of Non Standard Construction?<\/h3>\n
Can The Money Be Used To Fund Care?<\/h3>\n
What Are The Alternatives To Equity Release?<\/h2>\n
Remortgaging<\/h3>\n