What is equity release?
Equity release schemes allow those aged 55 and over to access the equity (cash) in your home and receive it in the form of a lump sum. The most popular equity release option is a ‘lifetime mortgage.’ You retain ownership of your property and receive cash as a loan which is paid back when you enter into long term care, sell the property or upon your death. The second option for equity release is a ‘Home Reversion Plan.’ This involves selling a percentage of your home and being granted with a cash sum and lifetime lease which allows you to live in the property, rent-free, for the rest of your life. On your death, the property is sold and proceeds divided between the plan provider and your estate, according to the percentage each party owns.
Is equity release for me?
Longer life expectancy, combined with the current financial climate of low interest rates and reduction in the value of savings and pensions means more people are turning to equity release to supplement retirement income. The benefits of a cash lump sum with no monthly repayments are easily seen. However, there are a number of things to consider. Some schemes contain hefty early redemption penalties which means that moving house could be difficult or even impossible. It is worth considering how your property may meet your needs in the future. For example, is it large and expensive to heat, is there a large garden to maintain and can modifications such as stair lifts be installed if necessary? The receipt of a large cash sum could also impact on any state benefits currently being received and will reduce the value of your overall estate for any beneficiaries.
What kind of advice should I look for?
If you are considering equity release, you should take financial advice from an Independent Financial Adviser (IFA) who is listed on both the Financial Conduct Authority Register and also the Equity Release Council Member Directory. Your IFA will be able to suggest the scheme that is most suited to your needs and circumstances. As equity release is similar to any other type of mortgage (a lender is either buying a percentage of your property or lending you money against the value of it), you will need to instruct a solicitor or conveyancer once you have decided on a specific plan. Look for a solicitor that is experienced in dealing with equity release as they will have knowledge of different schemes and can advise you about the implications of entering into your particular type of plan. As equity release will have a financial impact on the value of your estate, a solicitor specialising in Wills can advise on any updates that may be needed to your Will.
If you have a question about equity release, come and talk to us. We’ll be happy to help.