Equity release products are increasingly popular in the UK, with residents releasing £1.38bn in 2014 alone – the highest figure for a single calendar year. Releasing equity can provide access to funds for some homeowners, however it can involve risk and so, should not be undertaken lightly. So here are 10 facts you should know before considering an equity release product.
All equity release products are regulated
The Equity Release Council (formerly known as SHIP) was established over a quarter of a century ago to ensure that invaluable safeguards existed to protect customers looking to release equity from their homes
There are a number of equity release lenders
Like with other financial products, there are a number of firms offering equity release plans. This makes it important for any homeowners looking to release equity from their home to shop around for the best deals for their situations.
Equity release advisors should be suitably qualified
If you are seeking advice on equity release, you should check that the adviser holds one of the following appropriate qualifications:
- CeRER (Certificate in Regulated Equity Release) – awarded by the Institute of Financial Services (IFS)
- Certs CII (MP & ER) – Certificate in Equity Release – awarded by the Chartered Insurance Institute (CII)
- ERMAPC (Equity Release Mortgage Advice & Practice Certificate) – awarded by the Chartered Institute of Bankers Scotland (CIOBS)
Most lenders will not release equity on properties under £70,000
To help protect their investment, it is highly unlikely that a lender will release equity on properties which are valued under £70,000 on the housing market.
It is possible to release equity if you haven’t fully paid the mortgage
Yes you can but the funds must first be used to repay any existing mortgage or other loan secured on your home. If your mortgage is relatively small compared to the value of your home, then you may be able to have surplus funds to use as you wish, but if there isn’t sufficient equity in your property to begin with, you may have to make up any shortfall from savings or other means. This is an area where good qualified advice is crucial
If you’re younger than 55 lenders won’t let you release equity on your home
Designed primarily for those of, or approaching, retirement age; lenders will not allow applicants to release equity from their home if they are under the age of 55. Furthermore, joint applications will be judged on the age of the youngest applicant.
You could still move home after releasing equity from your property
All equity release plans offered by providers that are members of the Equity Release Council are portable. This means that your plan can be moved to another home, so long as the new property is acceptable to the provider based on their criteria at the time. If you have taken a Lifetime Mortgage and wish to downsize to a lower valued property, then the lender may require part of the loan be repaid to keep it within their limits at the time. They will waive any Early Repayment Charges if they require that you do this
Charges may apply if you want to repay early
Lifetime Mortgages are designed to be repaid without any penalty when the last borrower dies or moves into Long Term Care. Lenders may impose Early Repayment Charges if the plan is ended prematurely for any other reason by the borrower. It is important to discuss your situation with a qualified adviser, as there may be a suitable Lifetime Mortgage that allows you to make partial or even full repayment of the loan without any penalties.
You may be able to release more equity if you’re overweight or a smoker
Every application for an equity release product is different, based upon a variety of different personal factors and property details.
Retirement specialists, Age Partnership, explain: “Unlike other finance products, an equity release application may actually be aided if the applicant is overweight, diabetic, a smoker, heavy drinker or suffer from high blood pressure.” Having these medical conditions may allow to obtain an enhanced amount.
Equity release schemes can reduce the value of your estate
Releasing equity may reduce the size of your estate. As a result, it will reduce the amount you would be able to pass on to your family or loved ones. This is why it is best to speak to a qualified equity release advisor, additionally they will also let you know your entitlement to any means-tested state benefits that you may receive now or in the future.
Equity release may involve a lifetime mortgage or reversion plan. To understand the features and risks, ask for a personalised illustration.