Find out what we can do to help you with your finances. Get in touch with us today!
What is Equity Release?
The value of your home, less any mortgage is known as ‘equity’.
Equity release is when you choose to release some of the funds that have built up in your home since you bought it. It’s becoming an important part of future retirement planning – and can be used to make your retirement more comfortable, or to open up exciting new possibilities.
The value of your home, minus any outstanding mortgage you may owe, can be described as your 'equity'. Equity release is the process of unlocking some of this value, turning it into a tax-free lump sum of cash. You could then use this to pay for one-off purchases, to improve your lifestyle or to help loved ones.
If you are a homeowner aged 55 or over, you could be eligible to take advantage of releasing equity from your property. Equity release can significantly improve your financial situation, giving you a more comfortable retirement.
Please be aware that all plans will reduce the value of your estate and may affect your entitlement to state benefits.
The lender gives you a lump sum (the equity released from your home). You pay nothing as the interest is ‘rolled up’ into the loan. The amount borrowed plus this interest is repaid out of the proceeds from the sale of the property after you die.
How much you can borrow depends on the value of your home and your age. The older you are, the higher the percentage of your property’s value you can borrow. Generally, you will not be advanced more than 50% of the value of the property. Most loans are fixed-interest, so reducing risk.
Equity Release is the name given to a range of financial products that convert a proportion of that equity into cash for your own use. Equity Release Plans usually have the following common factors:
• Equity Release has a minimum age of 55.
• You receive a guaranteed tax-free cash sum or income for life.
• You continue to live in your home for as long as you wish.
• There are no repayments required until your home is sold. This is normally after your death or entering long term care.
• You have the freedom to move to a suitable property should you wish to do so in the future and transfer your equity release plan to your new home.
• Your estate will not be liable for any debt beyond the property value regardless of future house prices.
Before considering equity release you should ask yourself the following questions:
Firstly, ‘are you prepared to use the value locked up in your home?’ If the answer is yes, you should also ask yourself, ‘have you considered the alternatives to equity release?’ There are 4 main alternatives:
1. Move to a less expensive property and use the surplus funds to meet your income or capital needs.
2. Use any existing resources, such as investments.
3. Use assistance from family, grants or unclaimed State Benefits.
4. Do nothing and pass on the value of your home, less inheritance tax (40% on anything over £325,000 in 2014-15)
Having considered the alternatives, the next question is ‘have you gathered sufficient information to enable you to make a decision that you and your family, are happy with?’
Whilst equity release can provide priceless benefits for many in retirement, it is not suitable for everyone. In some cases there can be drawbacks which outweigh the benefits. Get impartial advice. Obtaining impartial advice from a specialist equity release adviser is crucial if you are to make a decision on the right scheme and avoid making a mistake that you may regret for life.
The following list are examples of real-life situations where a customer has decided to complete a scheme. It is intended to give a feel for the real value that these people have enjoyed:
• Repayment of a mortgage to increase monthly income
• A tax-free lump sum for a private hip operation to avoid a lengthy waiting list.
• Help a family member buy their first home.
• Help finance a move to a new home.
• Replacement of family car and home improvements.
• Supplement pensions and share investments.
• Reduce the value of the estate and save on Inheritance Tax.
• Be with the grandchildren and ‘enjoy my money whilst I am alive’
• Buy a motor-home to travel throughout Europe.
• Just to have the money to spend as I want, when I want’.
Our clients have also used equity release to purchase a villa in southern Spain, to pay for gas central heating and another simply doubled her annual income, making an enormous difference to her lifestyle.
We only recommend lifetime mortgages which adhere to SHIP standards.
This means that we will only recommend a plan where the benefits, obligations, variables and limitations are clearly set out in the provider's literature, including all costs which the applicant has to bear in setting up the scheme, the position on moving, the tax situation and the effect of changes in house values.
The legal work will always be performed by the solicitor chosen by you. In all cases, prior to the completion of the plan the solicitor will be provided with full details of the benefits the client will receive. The solicitor will be required to sign a certificate to the effect that the scheme has been explained to the client.
The plans that we recommend carry a 'no negative equity' guarantee i.e. you will never owe more than the value of your home.
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.