Are you a homeowner aged 55+ who is struggling for money?
Equity Release and why it could be for you
Are you a homeowner aged 55+ who is struggling for money? If so… why not get advice about whether Equity Release could help you by releasing tax-free cash from your home?
As the population gets older generally, Equity Release is something that many people are finding useful for many reasons including helping them to plan for retirement.
- Does your pension need a ‘top-up’?
- Would you like to see whether you can fund a more ‘comfortable’ retirement?
- Do you wish to fund home improvements?
- Perhaps you’d like to stop working – or at least slow down!
- Maybe you want to help a family member by giving them cash to help them along?
- And what about the holiday of a lifetime you’ve dreamed of?!
Whatever your reason for considering Equity Release, make sure you don’t act before seeking advice. The market can be confusing with numerous companies offering Equity Release products and there being numerous different types of products available…. so receiving early, independent, impartial advice is essential for your own protection. Don’t simply ‘go it alone’ as there is no doubt that getting it wrong does carry risks.
So. First of all….. what is Equity?
Put simply, if you subtract the amount you still owe on your mortgage, and/or other debt secured against the property (if any) from the market value of your property, this will give you an idea of the amount of equity you have. Over time, house prices have generally risen, so if you bought your house years ago, its current value may mean you now have a good amount of equity – particularly if repayments you have been making over those years have reduced the amount you owe.
Types of Equity Release plan
There are four main types of Equity Release plan.
- Lifetime Mortgage – These popular plans give you access to a tax-free lump sum, while still allowing you to ‘own’ your home. However it is important to be aware that interest IS applied to the amount taken and that the loan WILL need to be repaid once you die – or perhaps go into long-term care
- Lifetime Mortgage with flexible ‘drawdown’ cash release – Here again, you continue to own your home and again interest is charged and will need repaying. However, these plans are more flexible in that they allow you to release cash gradually, over time, and crucially, only when you need it – hence this helps to keep interest charges at bay.
- Lifetime Mortgage with ‘interest only’ payable – Again, very similar to the above BUT with this option you do have the ability to pay money back into the plan – which again has benefits relating to the interest charges that apply.
- Home Reversion Plan – This product is only available to those aged 65 and over and here you actually give up the ownership of some of your property, in exchange for a tax-free lump sum. You do still get to stay in your property though and you don’t have to make any ongoing payments to the lender.
So. What’s good and not so good about Equity Release?
- You get a tax-free lump sum of cash
- You can spend the money however you wish
- You can stay living in your home
- You don’t need to make monthly repayments (Lifetime plans)
- You still own 100% of your home! (Lifetime plans)
- A ‘no negative equity’ guarantee applies
Not so good
- Releasing cash may affect your benefit entitlement
- The amount of money you will be able to leave to your loved ones when you die (or if you move into long-term care at some point) will be less because the money you took – and interest on this – has to be repaid
- Ordinarily, taking out an Equity Release plan is a lifetime commitment. This means that if, in future, you wish to ‘buy back’ your home – or if you wish to repay the loan early….you may have to pay additional charges / penalties. Some plans do allow you to repay a percentage of the loan off each year but you need to take advice and be clear from the outset as to exactly what applies in your particular contract so there will be no nasty surprises ahead
- Taking out more money than you need at the time is a common potential ‘pitfall’
- If you have cash or investments, equity release may not be the best option for you. Take financial advice
How much money can be released – and how?
Various online calculators are available which can give you an idea of how much cash you could release BUT these are no substitute for taking advice from a Financial Adviser. The first step, every time, is to talk to an adviser over the phone, or in person, to ensure you and your property are eligible and to get advice on which products, rates and conditions that apply to them, best suit your needs.
Equity Release schemes, providers and advisers are regulated by The Financial Conduct Authority and many providers are also members of the Equity Release Council. The Council has standards and principles for providers and advisers to adhere to i.e. a Code of Practice exists which aims to ensure high standards are maintained within the industry.
A recent addition to the portfolio of products which may be of interest is the RIO (Retirement Interest Only Mortgage). These products may offer lower interest rates and higher ‘Loan to Value’ ratios BUT there are trade-offs. Take advice from a financial adviser.