What is Equity Release?
If you are a home-owner, you can access some of the money invested in your home without having to move in one of 2 ways:-
- Lifetime Mortgage. This acts like a normal mortgage, being a loan secured against the value of your home. It is the most common form of equity release plan. Ordinarily the money does not have to be repaid, (plus interest) until you pass away, or move into a care home.
- Home Reversion Plan. You can sell your home, or a percentage of it, whilst you remain in it. The reversion company (the financier) will instead receive a share of the house proceeds once eventually sold. Again, this would ordinarily be if you were to pass away, or move into a care home. It is worth noting that the finance company will ordinarily not have paid you the full market rate for their share, when giving you cash, so the value of your estate may be significantly reduced upon the property’s eventual sale.
Is Equity Release available to all?
There are a few of pre-conditions you must satisfy. For a Lifetime Mortgage the property owners must be at least 55, whilst if opting for the Home Reversion Plan the owners need to be at least 60 years old. The property involved must be your main residence and in the UK. Importantly it should be in decent condition and of a fair value, to provide the financier with certainty as to the eventual return. As part of the equation, if the property is already the subject of a mortgage, that would have to be redeemed before, or at the point you take out equity release.
Family Involvement.
Equity Release may not be possible if other members of your family live with you. In effect, any family members would be invited to sign a waiver, releasing their rights to remain at the property as a condition of the loan funds being made available. They should seek independent legal advice before doing so.
What are the Pros and Cons of equity release?
Understanding and securing Equity Release can be complicated and as it often involves your primary asset, you should certainly seek independent expert advice. Your personal circumstances should be reviewed and potential alternatives explored, before establishing the best route for you.
The Advantages include the fact you could secure a tax-free lump sum to meet any immediate needs or plans, and/or regular, smaller payments to boost your income whilst you continue to live at home. It is possible that you would continue to benefit from any increase in the value of the property, whilst if engaged in a Lifetime Mortgage you would still keep ownership of the home whilst you lived in it.
The Disadvantages are that your intended estate beneficiaries are likely to receive less, as the value of your net estate will diminish. (With the home reversion plan, the finance company owns all or a part share of the property). The fact you have taken a lump sum and/or regular payments may adversely impact upon your entitlement to means tested benefits, going forward. For example if you were to receive a care at home package funded by the Council in full or in part, the Council may charge you for those services in full or in part too.
Impact on Benefits.
The types of benefits that can be impacted include - Pension Credit, Jobseeker’s allowance, Income support, Universal Credit and any Council Tax concessions. This reinforces the importance of seeking expert advice before proceeding with the Equity Release process. Is it right for you.
Where to next?
The good news, is that any businesses providing or advising on Equity Release schemes, must be regulated by the Financial Conduct Authority – which offers you certain protections. Ideally, you should also only seek a product from financiers who are members of the Equity Release Council. This adds another layer of protection through the voluntary code of good practice they enter into. This Code ensures they have to adhere to certain standards.
As an example you will never owe more than the value of your home, on sale after your passing or moving residence – thus ensuring you or your estate are not met with unexpected, additional debt.
If you wish to proceed with an Equity Release plan or wish to discuss any of these issues, please contact Donna Trewerne via djt@kingsfords.net or by telephone on 01233 648425.