Equity Release

Equity Release

How do I release equity from my home?

"This type of contract allows you to release equity from your property, either by way of income or a lump sum. This can be used to enhance your lifestyle in retirement, or perhaps to repay the mortgage which is taking up your income every month"

What is Equity Release?  

Equity release comes in two forms:  Lifetime Mortgages & Home Reversion.  Below is an explanation of both.

Lifetime Mortgages 

Lifetime mortgages are generally  available to those aged 55 years and over.  This type of mortgage allows you to release equity from your property, either by way of income or a lump sum whilst still retaining full ownership. The funds can be used to enhance your lifestyle in retirement, or perhaps to repay the mortgage which is taking up your income every month. These mortgages are usually taken out on an open-ended basis, meaning that there is no set term. The loan is repaid from your estate when you die, or if you are taken into long term care. 

Previously most equity release mortgages would have the interest added to the  loan amount, sometimes referred to as "roll up".  This means that   debt would increase as time went on. The  mortgage would be repaid when the last borrower was admitted to long term care, or died. These types of deals are still available and suit some people, for example; if someone needs some capital and is not concerned with leaving their property to someone when they die.

As the market has progressed some of the "roll up" mortgages allow overpayments which is useful if you are able to afford to make some flexible payments of interest, keeping the ultimate amount owed lower.

Drawdown equity release allows you to release cash as and when you need it, this can save a substantial amount of interest over the term as you only pay interest on the amount owed.   

If you can afford monthly interest payments and meet the lender's affordability criteria, it is now possible to arrange an interest only style mortgage; but set term to when the mortgage would need to be redeemed.  Similar to the versions above, the debt would be repaid when the last surviving borrower went into long term care or passed away.

These deals can be of help to those who can afford their mortgage, but just want to keep it into their retirement.

Because this is such a growing market, there are more and more providers offering products. This is good, as competition keeps the lenders on their toes and they will keep improving their deals to attract business. 

At Talk Money we only recommend lenders who are members of the Equity Release Council.  They are a trade body whose members must follow a strict code of conduct.

Their safeguards include:
  • A ‘no negative equity’ guarantee, meaning you’ll never owe more than your house is worth – so you won’t leave your family in debt.
  • The right to live in your home for life or until you move into permanent care.
Home Reversion.  

These types of plan are available to those aged 65 and over.

A Home Reversion Plan is a type of Equity Release where you sell a percentage of your property to a Home Reversion Plan provider who will pay a lump sum to you for the share.  This means that you do not retain full ownership of your property, however, you retain the right to live in the property for the rest of your life or until you move into permanent care.  Normally this would be rent fee.

You will receive less than the market value of your home since the buyer cannot sell it until you die or move permanently into long term care.

The percentage of the property owned by the provider is known at outset so when the house is sold on your death or move into care, the provider will receive their percentage of the property sale proceeds, with the remaining percentage being paid to you or your chosen beneficiaries on death. 

Taking equity release a major financial decision and it is essential that you take whole of market advice. There are many pitfalls to look out for, and an experienced and qualified adviser will ascertain other options, then advise on whether equity release is suitable for you.  They will be able to locate the most suitable deal for you and advise you as to the best course of action.  

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