
What is Equity Release?
It is an umbrella term for different products that allow you to raise funds from your home once you are over the age of 55.
We know that if you mention just the words equity release there is always someone that has a negative story to tell you.
However, they have been regulated since 2004 and the regulation was tightened further in 1991 which many people are unaware.
So, we would like to dispel some of the myths surrounding the term “equity release” as they are not the products that many think they are and have helped many clients meet their goals and enhanced their lifestyle, or allowed them to help their family. There are disadvantages as there are with any other type of lending but there are many advantages.
The most common form of equity release today is a Lifetime Mortgage.
To understand the features and risks of a lifetime mortgage, please ask for a personalised illustration. Check that this mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it. If you are in any doubt, seek independent advice.
A Lifetime Mortgage
A Lifetime Mortgage is a loan secured against your home, the amount offered will depend on your age, and value of the property on application which is repaid on 2nd death or entrance to long term care. The property is then sold by the family as normal and the loan with the interest repaid. After the lender has been repaid as above the remaining equity would be divided as per your will.
You retain ownership of your home and have the right to remain in it until the last borrower passes away or goes into long term care.
The rate on the initial sum is fixed for life and you can elect to pay some or all of the interest each month on some products or allow it to roll up and be repaid along with the initial amount.
A Reserve can also be set up if you are not taking the full amount of funds offered at the start.
The reserve account does not attract interest unless you draw down from it.
You can draw down as many times as you wish with a minimum each time of £2,000.
The rate is also fixed for life on the draw down but will be at the best rate the provider can offer you at the time of draw down.
With most lenders if you decide to move you can “port” the mortgage to a new house, you are able to make an overpayment of 10% of the balance each year.

The Myths
I will lose my home and don’t own it anymore.
Not true, you still own your home, as you would with a “standard” mortgage, and the lender has first charge in the same way. You will not be forced to sell your home, or move out in your lifetime and if the loan is joint then this applies to the last surviving homeowner.
I won’t be able to move.
As long as the new home meets your lender’s criteria you can transfer the loan to another property for instance if you decide to downsize or move to a cheaper property. You do not have to repay the loan and then buy cash from the remaining equity. In some cases where the property value is a lot less the lender may ask you to repay some of the loan depending on its value at the time.
My family will be left with a debt when I pass.
This is not the case, all lenders have a “No negative Equity Guarantee” which means your estate can never owe more than your home sells for, if does then then the lender takes the loss.
You can also elect to protect some of the equity as a percentage so there would always be an amount of inheritance.
I will have to pay interest on money that I don’t need.
You can take an initial sum and leave the remainder in a reserve account, which does not attract interest unless you draw down from the reserve funds. If you never draw from the reserve then will have only paid interest on the initial sum taken. It is like an overdraft, if you don’t use, you do not pay for it.
My credit history is poor or I have been bankrupt.
This is not a major issue for the lenders as there are no mandatory monthly payments they are more excepting of any issues that you many have had in the past. They consider your age’/s and the value of the property as security, not your monthly income or credit history so much as a “standard” mortgage lender does.
I already have a mortgage and therefore can’t have a lifetime mortgage.
You can still, providing the amount offered on the lifetime mortgage is enough to clear the standard mortgage, any surplus would be available to you upfront or left in the reserve. A lifetime mortgage has to be the only charge on the property.
Points to consider when considering if a lifetime mortgage is right for you:
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If you gift some of the money to family, they might have to pay Inheritance Tax in the future
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Interest on a Lifetime Mortgage is calculated daily and added to the amount you owe each month. This means that the amount you owe could quickly increase over time, reducing the equity left in your home.
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The inheritance you leave will be reduced.
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If you pay back some of the loan early, you may be subject to an Early Repayment Charge.
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Releasing equity from your home may impact your entitlement to means-tested state benefits.
There is a place for a lifetime mortgage, and they may not be for everyone, but they are one of the most heavily regulated financial products in the UK currently as they should be to protect you in later life when your home is so important to you and your family.
In summary, maybe have a chat with us at no obligation, and we can explain in a totally transparent manner all the advantages and disadvantages and help you decide if it may be right for you.
A fee may be charged for equity release advice. The exact amount will depend on your circumstances, but we estimate this will be £995 only payable on completion.
