Equity Release

Equity release is a form of later life mortgage available to homeowners aged 55+ who have a property that is worth at least £70,000.

The most common type of equity release is the lifetime mortgage. With a lifetime mortgage you can release money as a loan secured against the value of your home.

You retain ownership of your home in the same way as with a conventional mortgage. The lender needs to be repaid, generally from the sale of your home, after you either die or move into long-term care.

With an estimated 10,000 older clients having suffered heavy financial losses at the hands of unscrupulous firms holding out the hope of a risk-free comfortable retirement through Home Income Plans in the 1980's, it's hardly surprising that Equity Release has been regarded with suspicion. Following the ban of home income plans in 1991, equity release has slowly begun the climb back to prominence.

Effective regulation under the Financial Conduct Authority has certainly helped with this, however, it is the standards set by the Equity Release Council, formerly Safe Home Income Plans (SHIP) which has led to dynamic change in the industry led to a much safer and consumer friendly process with advice personalised to a client's individual circumstances.

The Equity Release Council, along with the lenders, advisers and solicitors who make up the bulk of its membership have driven innovation in consumer protection including elements such as interest rates which are fixed for life; the right to make penalty-free payments; portability to another property and, crucially, the “no negative equity guarantee”.

This means that when your property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more.

UK Moneyman Limited and our later life mortgage advisor Dan Osman are voluntary registered members of the Equity Release Council, adhering to the standards they have set and providing customers with a holistic, tailored service which takes into account the available alternatives, anticipated futures changes and other aspects of later life planning. Family, or trusted friends/advisors, are also encouraged to be part of the process.

Maybe. The role of a qualified later life mortgage advisor is to spend time getting to know you, your plans and your hopes for later life.

We will explore the alternatives available to you and look to provide the best value solution for your needs in the long term. We encourage family to be part of these discussions, but that is always your choice.

Rest assured that if equity release is not the best option for you, your later life mortgage advisor will tell you and either provide an alternative solution, or refer you to another professional who can.

You retain 100% ownership of your home so when it is sold after your death or entry into long-term care the balance of the remaining equity after the lender has been repaid will go to you or into your estate.

Thanks to our membership with the Equity Release Council, we can offer customers something called a No Negative Equity Guarantee.

This means that, if the property is sold for a fair market value and the amount you owe including any interest accrued exceeds the sale price after estate agents and solicitors' fees, neither you, nor your estate or family will be liable to pay any more.

In terms of how much interest you will pay, this is determined mainly by the amount you are borrowing as a percentage of the value of your house and the age of the younger borrower, although other factors can have an impact. Interest rates are generally fixed for the life of the loan.

Repayments of just the interest or larger sums are optional with most lifetime mortgages, meaning that you can pay what you can afford to reduce the amount of interest adding to the loan.

If you don’t make any repayments, the interest will add to the loan and compound, meaning the amount of interest will be more each year, as you would be paying interest on the interest already added.

This will increase the debt against your home, which means there will be less for your beneficiaries or for you to use for later life costs, such as paying for care.

The costs of equity release will vary depending on a selection of different factors. These include the amount of equity you're looking to release, how old you are, how long you would like your plan to last, the interest rates attached to the plan and the ways in which you would like to personalise your equity release plan.

Much like a regular mortgage, you will still have to factor in additional costs such as a surveyor's fee, solicitor's fee and a mortgage broker fee, set at the discretion of your mortgage advisor.

There are a lot of variables when it comes to inheritance and equity release, depending entirely on what it is you are looking to do. Lifetime mortgages will incur some form of interest. What you choose to do with this interest could affect your inheritance.

Some homeowners will look to pay back all of their interest, which will just leave the capital balance to be paid back upon death or moving into long term care. Others will let the interest roll up, which means there will be a higher mortgage balance to be paid back upon the sale of the property.

The more equity you take out of your property, even if you pay back all of the interest, the less you will have left for inheritance.

Alternatively, if you choose to let the compound interest roll up, this will generally reduce your inheritance further. In some instances, there may be nothing left for inheritance, once the home is sold and the lifetime mortgage balance has been paid back.

We would always recommend speaking with a qualified later life mortgage advisor, to discuss how best to approach your equity release options. If you would like a specific amount to be left for inheritance, this should form part of your initial discussion with your advisor.

Many homeowners will take out a lifetime mortgage as a way to release equity, with a view to gift an early inheritance to a family member. This could be for reasons such as a deposit to purchase their own property.

We would also suggest speaking with a qualified tax advisor to further understand inheritance taxation.

If you know from the start that you may need more money in the future, it is important to talk about it with your later life mortgage advisor, as it may be possible to arrange a cash reserve facility which gives you easy access to more money in the future.

If you have a lifetime mortgage with no cash reserve, you may still be able to get a further advance from your lender.

This must be arranged with a qualified later life mortgage advisor, who will also compare the available plans on the market to see if you would be better off with a further advance, or moving your lifetime mortgage to a different plan.

Lifetime mortgages are portable! If you want to downsize at a later date, you can generally move your mortgage to the new property subject to the lender’s terms and conditions.

If this is a possibility, you should talk to your later life mortgage advisor in depth about your plans to make sure you’ve got the flexibility you want.

Lifetime mortgages can also be used to buy a house. Many people want to move to be nearer family but can’t due to property prices, a lifetime mortgage could help you raise the extra funds you need.

There are lots of benefits to taking out a lifetime mortgage. One of the main benefits to this, is that whilst you do have the option to make monthly mortgage payments if you would like to, you have the option of letting the interest roll up, leaving you without any monthly payments.

Once you have passed away or moved into long-term care, your property is sold to pay off the mortgage balance.

Firstly, a lifetime mortgage is designed to be a long-term solution and changing it once in place can be expensive.

It is, however, worth reviewing your lifetime mortgage on a regular basis, as a small drop in interest rates can make a big difference to the cost of the loan in the long run. A later life mortgage advisor will be able to give you an analysis of potential savings, including all costs.

If you want to repay your lifetime mortgage, (for example, because you have received an inheritance) you can at any time, however, there may be penalties.

It is important to consider all likely future events when speaking to your later life mortgage advisor as it will help them to recommend a product which remains as flexible as possible to take your plans into account.

Lifetime mortgages can either come as a lump sum lifetime mortgage or a drawdown lifetime mortgage.

A lump sum lifetime mortgage works as the name suggests, allowing for you to release your funds, tax-free, into one big lump sum. This allows you to retain complete ownership of your home, without the need to make monthly repayments, and no restrictions on what you can use it for.

A drawdown lifetime mortgage works similarly, but instead only releases part of the equity in your property, giving you the option to draw additional equity from the property as and when you need it. This actually reduces the overall cost of your mortgage, as interest is only charged on the amounts you draw out, which could save you a lot of money!

The criteria to qualify for each of these types of lifetime mortgage is the same as one another.

Apart from speaking to a later life mortgage advisor about whether equity release is right for you, it is worth thinking about other arrangements which can be made for the future.

We strongly recommend talking to your family about equity release, bringing your will up to date and arranging lasting powers of attorney.

These are all important as, often, it is your family as beneficiaries (after your death) or attorneys (if your mental capacity is impaired) who will have to sell the property to repay the lifetime mortgage.

It is like everything else, proper planning now makes things easier, and generally cheaper, later.