Equity release allows you to convert some of the equity in your property to a tax-free cash lump sum, or a regular income, without you having to sell up and move out, and without the need to make any monthly payments. It is an option available to homeowners over the age of 55.
Equity Release became available in the UK in the 1960’s and has seen a real surge in popularity in recent years. With the cost of living ever increasing, and incomes not matching pace, it is easy to see why demand is on the rise.
Over the years Equity Release has undoubtedly suffered some bad press. In times of prosperity in the 1980’s, borrowers and lenders alike were optimistic about future interest rates and a continuation in the boom of house values. Unfortunately for many, not only Equity Release customers, borrowers faced the grim situation of negative equity.
Since that time, however, Equity Release has become a heavily regulated industry and has safeguards that protect the borrower. In the early 1990’s, the Safe Homes Income Plans (SHIP) organisation was formed to increase consumer confidence in Equity Release products. SHIP has since become the Equity Release Council, whose stringent code of conduct ensures transparency in the market and ensures that borrowers will never find themselves in the position of negative equity.
So, what are the myths and truths in Equity Release?
Myth: I will lose my home and be forced to move out
Truth: Not true – both Home Reversion and Lifetime mortgages have safeguards to ensure this will never happen. Provided that the property remains your main residence, and you comply with the full terms of the agreement, you can remain in your home until you decide to move or until you die.
Myth: There will be no inheritance to leave my children
Truth: With a simple “roll-up” Lifetime Mortgage the debt increases over your lifetime. If you die and the debt is still below the value of your property, the excess will be left to your estate. In a home reversion plan you sell a percentage of your property, and no matter how long you live, the percentage that remains unsold will be left to your estate. It is possible to guarantee an inheritance, even with a roll-up mortgage plan. No debt will be left to your estate as a result of Equity Release.
Myth: I can’t arrange Equity Release as I still have a mortgage
Truth: As long as enough money can be raised on the Lifetime Mortgage or Home Reversion plan to pay off the mortgage and any other loans secured on the property, then it is possible to arrange Equity Release if you still have a mortgage.
Myth: Doing Equity Release will mean I can never move home
Truth: You can move at any time with a Lifetime Mortgage. With some lenders you can transfer the loan to your new property or you can repay the loan from the sale proceeds. As long as it’s suitable security, you then start a new loan which is secured on your new property. However, you should bear in mind that these plans are intended to be long-term and if you move, the loan may have to be repaid with any early redemption charges and fees.
Myth: Equity Release is risky and unregulated
Truth: The Equity Release Council is the industry body for the Equity Release sector, and they set the standards and safeguards that protect and reassure consumers. The strict code of conduct means that Equity Release customers will never have to leave their home as long as it is their main residence, and they are given the ‘no negative equity’ guarantee, meaning customers will never owe more than the value of their home and no debt will be left to their estate.
Equity Release is not the answer for everyone, however, and it is vital to look at all of the options carefully – such as taking in a lodger, downsizing, using savings or unsecured borrowing to raise extra income.
It is also important to remember that Equity Release will reduce the inheritance you leave, it could affect your means-tested benefits, and consolidation of debts with Equity Release will increase the amount you have to pay back.
Luckily, experts are on hand locally to help you understand the features and risks of Equity Release in the form of AskERIC: the Equity Release Information Centre based in Leeds. To find out if Equity Release is right for you, contact AskERIC on 0800 077 6885 or visit www.askERIC.tv and request your FREE guide on Equity Release.
There are two main types of Equity Release plans: Lifetime Mortgages and Home Reversion plans.
Lifetime Mortgages
Roll-Up Lump-Sum: Under this version of the Lifetime Mortgage Plan, you borrow a percentage of the property value, but you don’t have to make any monthly mortgage repayments of the loan or interest. Each year (or month) interest is added to the loan.
Roll-Up Drawdown: Instead of taking a cash lump sum initially, a drawdown plan allows you to receive a series of smaller cash lumps sums. With a drawdown plan, the lender agrees a maximum amount you can borrow. You then have the cash facility to withdraw amounts when you need them. This means that, as the loan is smaller in the earlier years, the total interest added to the loan is less than if you took out the full amount initially.
Interest-only Lifetime Mortgage: A Home Reversion Plan and Roll-up Lifetime Mortgage Plan do not require you to make any monthly payments. If you have an Interest-only Lifetime Mortgage, you pay interest on a monthly basis, meaning the loan amount does not increase over time.
Enhanced Lifetime Mortgage: An increasingly popular form of a lifetime mortgage plan, an enhanced plan simply enables you to release extra funds based on your lifestyle and health conditions.
Home Reversion:
Home Reversion Plans allow you to sell all or part of your property now, for a tax-free cash lump sum. A legal agreement guarantees that you continue to live in the home rent-free (or for a nominal rent such as £12 a year) until you wish to move or until you die.
About AskERIC – the Equity Release Information Centre:
We are the longest established Equity Release specialist in the UK – marking our 30th year in 2015 – and take pride in our position when giving you expert, impartial information and a first class level of service. We are genuinely independent and concentrate only on retirement products.
- We are a local company – based in Leeds – but offer our service nationwide.
- We provide a friendly professional service offering a free no-obligation initial consultation, either face to face or completed over the telephone.
- Our expert local advisers compare and contrast all of the different Equity Release plans available to find the best product to suit your needs and circumstances.
- We are in a position to recommend plans from our ‘whole of market’ panel with large reductions in set up costs and interest rates.
- All information will be given on a one-to-one basis and then provided in writing. If we feel Equity Release is not the correct route for you then we will confirm this in writing.
- We are authorised and regulated by the Financial Conduct Authority (FCA).
- We will only recommend plans from organisations that are members of the Equity Release Council (ERC) / Safe Home Income Plans (SHIP) or those with similar guarantees and safeguards.
- We will complete a review to make sure raising funds through Equity Release does not reduce your means-tested benefit entitlement ie pension credit and council tax benefit.
- To understand the features and risks of a lifetime mortgage or home reversion plan, ask for a personalized illustration. Always consider the impact that Equity Release might have on your entitlement to means-tested benefits. If you have family, make sure you discuss Equity Release with them; your decision will affect their inheritance. Our typical advice fee is 1.5% of the loan, with nothing to pay initially, and no obligation.
“This is a lifetime Mortgage or Home Reversion Plan. To understand the features and risks ask for a personalised illustration. Plan availability is subject to lenders criteria and dependent on their terms and conditions. Consider the impact that Equity Release may have on entitlement to means tested benefits. Equity Release will affect the inheritance you leave. Only if you choose to proceed and your case completes would a typical fee of 1.5% of the amount released
