Is Equity Release Right For You?
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Equity release schemes are available to homeowners aged over 55.
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They allow you to get cash out of your home without having to leave your home
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Most schemes allow either a lump sum or an income to be taken, many will allow both.
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The money taken is tax free
Most people considering equity release will have looked at other ways of raising the money first, these include:
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Asking family of friends for a loan or gift
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Moving to a cheaper property.
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Taking out a personal loan, for many people this may work, but loans have to be paid back and one of the reasons people use equity release is to pay off debt, without reducing their income.
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A debt management plan is an alternative for some people but are not available for everyone. You may qualify for a loan or grant from the Local Authority although these are becoming harder to get.
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Waiting for an inheritance, winning the lottery.
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A conventional repayment mortgage or a Retirement Interest Only mortgage (sometimes called an RIO). These can be at lower interest rates but most are time limited and have to be repaid by the time you reach 85. You’ll need a large enough income to be able to meet the repayments beyond retirement to qualify for one of these. If you have a partner, wife or husband, they will need to be able to make the repayments from their sole income if you die.
This is a lifetime mortgage. To understand the features and risks please ask for a personalised illustration. Check that this mortgage will meet your needs. If you want to move or sell your house, or if you want your family to inherit it. If you are in any doubt, seek independent advice.
Alternatives to equity release that
you should discuss?
Downsizing
This means selling your current home and moving to something less expensive. This may work but can be expensive, you’ll need to include estate agents’ fees, solicitors fees, stamp duty and moving costs, sometimes you’ll need to redecorate and buy new furniture.
Claiming State
Benefits
Most benefits are means tested, this means that if you have over a certain level of income or savings you won’t get anything.
The sorts of benefits
available are
Pension credits, savings credits, disability credits, universal credits and council tax relief.
Tracing any old bank or saving accounts:
There is estimated to be £50 billion pounds tied up in old pensions, bank accounts and insurance policies. (source: The Telegraph July 2022 and Money Savings Expert Website)
After 15 years if they aren’t claimed they go to charity. Try mylostaccount.org.uk for bank accounts.
Using your saving
A popular way to bridge the income gap, the problem is that interest rates are low giving a poor return on investment and savings are finite, they will run out someday. If you owe money your savings may not be sufficient to pay off your debt.
Dealing with debt
Dealing with debt: if you have debt issues then you can get help from charities like Step-change or money helper who will help you manage a debt repayment plan.
www.stepchange.org
www.moneyhelper.org.uk
Lifetime mortgages explained
There are two types available;
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The most popular is an interest roll-up mortgage, here interest is added to the loan. If you make no payments the debt will increase over time. After death, or if both parties move into long-term residential care, the house is sold, and the mortgage repaid. Most life-time mortgages offer a no-negative equity guarantee, this means that your debt is repaid in full after death, you won’t leave a debt behind. Sometimes it is possible to refinance the debt perhaps as a buy to- let mortgage and pay off the debt, which means your family can still inherit a valuable asset after the debt is repaid.
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The other type is an interest only repayment mortgage. With this type of mortgage borrowers can elect to pay a fixed amount of interest, sometimes capital as well. The amount you owe is paid back when the house is sold.
For And Against Of A Lifetime Mortgage
| FOR | AGAINST |
|---|---|
| Fixed rates of interest, limits the cost | The inheritance you pass on may be reduced and the people you leave your home to may have to sell the property in order to repay the loan |
| Monthly incomes, or a lump sum, or a combination of both. | You will need the lenders permission for someone else to live in your home. A new partner, relative or carer |
| You get to stay in your own home and it remains yours. | Your entitlement to benefits might be affected |
| Many schemes guarantee that the total debt won’t exceed the value of your home. (called a no-negative guarantee) | You might have to pay some fees, valuations, arrangement fees of legal fees. |
| The Loan is only repaid when you stop living there, because of death, or re-location to a care home. | You might not be able to transfer all the equity to another less expensive property |
Important
All equity release schemes require independent legal advice, the person advising you must be qualified to do so. If you don’t take advice you may not be covered by the protections available. All equity release advisors will have passed Equity release examinations, in order to give advice.
Fees & Costs
Whatever route you take there will be some costs;
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Most lenders offer plans with no arrangement fee or if they do, may offer a lower interest rate.
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You might have to pay a valuation fee
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You will have to pay a solicitor to act on your behalf typical costs are about £750
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You need to keep your home insured.
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You will usually have to pay an advice fee.
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Sometimes the expenses can be deducted from the loan or added to the loan in order to keep the plan affordable.
Why do people use equity release?
Source: Key Market Monitor full year report 2022.
use it to provide home improvements, including adjustments for care.
House prices have increased in value over the last 30 years, however pensions and savings have not kept pace. Many people took out interest only mortgages in the late 1980s and have now realised that the endowment won’t pay off their mortgage. They now need a means of repaying them. Credit card debt has increased and the average debt in the UK for someone over 60 is £8,800. Debt management plans don’t solve the problem; they only work in limited circumstances.
Source: Key Market Monitor full year report 2022.
of people use equity release to pay off debt, mortgages and credit cards.
Other uses are to pay for long-term care at home; help with washing and dressing and shopping. Or services including gardening, cleaning, ironing. Gifting to children, holidays and just general living expenses.
Equity release is a way of using the money tied up in your house to pay off debt or improve lifestyles.
As people are getting older and are living longer, they want to maintain their lifestyle and health. They want to try new experiences and travel. Pensions just can’t keep up with their ambitions.
Inheritance tax and care fees are the biggest hinderances to passing on money to children.
Meanwhile homes continue to provide an asset worth much more than the price people paid.
To speak to an independent advisor call: 07789 885611 or fill in the form below.