What is equity release?
You can use an equity release product to release cash from the value of your home. Be aware that boosting your available wealth in this way may aﬀect your entitlement to means-tested beneﬁts.
If you are considering equity release, it is important to discuss matters with your family, especially if you intend to make them beneﬁciaries of your will. You must also take professional advice.
An equity release plan will reduce the value of your estate, so telling your family about your plans will avoid any nasty surprises further down the line.
What kind of equity release plans are there?
There are two types of equity release plan: lifetime mortgages and home reversions. For most lifetime mortgages on the market you must be at least 55 to be considered, while for most home reversion plans you must be at least 65.
For couples, both individuals must have reached these ages.
What is a lifetime mortgage?
A lifetime mortgage is when you borrow against the value of your home. You retain ownership of the property and can continue to live in it until you die or move into permanent care (this applies to the second person in a couple). At this point the property is sold and the mortgage repaid.
With some lifetime mortgages, mortgage interest is added to the capital debt and rolled up. With others, you can make monthly payments to clear the interest as you go.
What is a home reversion?
With a home reversion, you sell a portion of your home for a price below the market value. When you die or move into permanent care (this applies to the second person in a couple), the property is sold, and the proceeds are divided between you/ your estate and the plan provider.
How does home reversion work?
If your home is worth £300,000 and you decide to sell 30% (£90,000 worth) via a home reversion, the plan provider may agree to pay you, say, £50,000.
When the property is sold, the company is entitled to 30% of the sale price. If the house has increased in value to £400,000, it will receive £120,000. If the property has fallen in value to £200,000, it will receive £60,000
Are equity release products regulated?
Yes. Lifetime mortgages and home reversion plans are regulated by the Financial Conduct Authority, as are the companies that oﬀer them.
Most (over 90%) of the companies in the equity release sector belong to the Equity Release Council, which promotes high standards of professional practice among its membership.
Is there any risk associated with equity release?
Members of the Equity Release Council, which represents around 90% of the market, attach a ‘no negative equity’ guarantee to the plans they sell. This means that, if the value of the property falls below the level of the debt, the company takes the hit and won’t pursue you or your estate for the shortfall.
Will my beneﬁts be aﬀected?
Boosting the amount of cash you have could aﬀect your entitlement to means-tested beneﬁts such as the pension credit and universal credit. It is important to work out how you might be aﬀected before you take the plunge with equity release.
Tell your family
Let your family know what arrangements you make regarding your home
Always take expert advice before committing to an equity release plan
Make sure your equity release plan has a ‘no negative equity’ guarantee
Assess your benefits
Check to see whether your entitlement to state benefits will be affected
Choose how you spend
There are no restrictions on how you can spend the money you raise
Read the small print
There may be restrictions on the type of work you can have done to your home
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